Oct 11

What Happens to Joint Debt After a Divorce?

Photo of a man dividing assets represented by items such as allegories of justice, a car, a house and money.

In this blog, D. & A. MacLeod Company Ltd. looks at how a divorce may affect a couple’s joint debt, and the importance of credit counselling for effectively navigating this situation.

Are You Responsible for Your Partner’s Debts?

Individual debt refers to any debt that’s solely in one of the spouse’s names. Joint debt on the other hand consists of debts incurred during the marriage and shared by both spouses. In Canada, spouses are not responsible for each other’s individual debts. You do however share responsibility for any joint debt that you hold with your spouse or partner.

The Different Types of Debts That Are Affected by a Divorce

Any credit or loan that you and your spouse took together will have to be shared in the event of a divorce. This includes credit card debt, tax debt, mortgages, and car loans.

What Happens When One Spouse Can’t Pay Their Debts?

Are you going through a divorce and your spouse is unable or unwilling to pay off their share of your joint debt? Here are some implications to consider:

Taking responsibility for the debt – While both spouses are equally responsible for the joint debt, failure on one partner’s part to pay off their share may result in the other partner having to take full responsibility for the entirety of the debt.

Impact on your credit score – While you may take responsibility for your spouse’s share of the joint debt, failure on their part to settle their share will affect both of your credit histories.

Creditors’ actions – Creditors may take collection actions against you to compensate for your spouse’s failed payments. They may for instance seize joint assets or place liens on your property.

Seeking negotiations with creditors – If your spouse is unable to pay their share of debt, you may both reach out to your creditors to renegotiate the terms of payment. The participation of both spouses is required for these negotiations.

Filing for bankruptcy – If both you and your spouse are unable to pay off the joint debt, you may consider filing for bankruptcy. It is however important to remember that this decision will have some impact on any shared assets that you may have.

How to Settle Joint Debt After a Divorce?

Here are some solutions to consider when settling joint debt after a divorce:

Refinancing – You and your spouse can refinance your existing debt by opting for a new mortgage or loan. A licensed insolvency trustee in Ontario can also help you consolidate your debts into a single payment.

Debt division – This is whereby you and your spouse come to an agreement as to how to split the joint debt between yourselves.

Debt transfer – If one spouse is able and willing to do so, they may agree to take on the entire responsibility for the joint debt.

Selling your assets – If you and your spouse have purchased certain assets jointly, you may sell them to pay off your debts.

Credit Counselling in Ottawa for the Management of Joint Debt

Are you looking for a licensed insolvency trustee in Ontario? | D. & A. MacLeod Company Ltd. offers credit counselling services in Ottawa to help individuals and couples settle their debts.