Does Debt get split during Divorce?
Divorce debt is one of the major leading causes for financial strain and can leave many people crippled financially.
There are many reasons why divorce can bring financial strain. The most obvious is that you are going from a double income household to a single income household. There are expenses associated with the actual divorce process including legal fees, moving expenses and possibly child support and/or alimony payments.
When you review your situation and your ability to pay your debts as they come due, you may find that you really cannot afford it. It may make sense for you to file a Consumer Proposal or declare bankruptcy to deal with your debt as this may be the best solution. Which of the two options is best for your unique situation – contact Doug Lee & Associates (Freshstartbc) for a personalized consultation. We are here to provide you solutions.
When it comes to joint debt, most people believe each spouse owes 50% of the debt. In fact, if one spouse defaults on a joint debt or declares bankruptcy, the other spouse becomes fully responsible for the entire debt, 100%. A joint bankruptcy filing requires both spouses to be on board and willing to work together. It is important to note that you cannot contract your lender out of the equation in a divorce settlement. That means, if one spouse agrees to take on a debt of 100%, it must be communicated with the lender and the other spouse must be removed. This often means refinancing the debt into one spouse’s name only.
An alternative to bankruptcy is a Consumer Proposal. A consumer proposal is a legal procedure whereby the debtor (or debtors) offers to repay a portion of unsecured debts. If a couple has a significant amount of joint debt, it may make sense to agree to repay the debt together. This does require both partners to be somewhat amicable through the divorce process.
It’s important to know that certain debts cannot be included in a bankruptcy or consumer proposal, namely child support and spousal support payments. These new payments can often cause financial strain and lead to declaring bankruptcy or filing consumer proposal, so it’s important to know that child support and alimony payments survive debt restructuring.
If you find you cannot qualify to take debt solely in your own name, you may want to speak with a Licensed Insolvency Trustee (Doug Lee & Associates) and get all the facts in order to make the most informed decision on divorce debt.