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How to Divide Debt During a Divorce

Written by: Alex Chan (View All Posts ) Published: May 13, 2020
Categorized: Debt, Divorce.

During the coronavirus pandemic, Canadians are finding it increasingly difficult to pay down their debt. This can be especially challenging around the time that couples decide they want to get a divorce.

When people think of dividing property during a divorce, they often think of their assets like the matrimonial home, bank accounts, and personal property. However, they will also need to address debt.

Dividing debt is similar to dividing assets. However, the process can be more challenging than people expect, particularly if parties hope or expect to divide debt unequally. With some basic information on the process, it will be easier for people who are facing divorce to understand how to address the issue of debt division.

Categorizing debt

One of the first steps in addressing debt it to confirm the character of that debt: Is it family debt, or is it debt which only one party should be responsible for? To do this, establish when the debt was incurred. If money was borrowed during the marriage, it typically is a family debt, even if only one person’s name is attached to the debt. Just like a car purchased during the relationship is typically categorized as family property, debt incurred during the relationship is typically family debt.

Dividing debt

In most cases, parties will divide family debt equally. The logistics of how this happens will vary between each case, but it could mean dividing debt accounts between divorcing spouses or dividing the total amount between the two people. Again, though, the division will be equal in most cases.

That being said, there are situations where equal division is unfair to one of the parties. In such cases, courts will consider whether and how to divide the debt unequally based on factors like written agreements to divide debt unequally, each person’s ability to pay down the debt, and the reason why that debt was incurred in the first place.

Resolving debt

Depending on how much debt the parties have, they may resolve the division in a number of ways. If there is a small amount, they might agree to pay it all off right away from joint assets.

If they have more substantial debt, they could divide the debt and each continue paying their portion down on their own after the divorce. They are also free to agree to other creative solutions to pay down the debt over time. However, it is crucial to understand that dividing debt in a divorce does not necessarily mean a party will no longer be accountable for the debt the other party is supposed to pay. If a mortgage, line of credit or other debt is registered in a party’s sole name or in the joint names of the parties, creditors can seek payment from the registered party or parties, regardless of their divorce agreement. It is therefore extremely important to make sure that any division of debt is as secure as possible.

Regardless of how parties choose to divide debt up, it is possible for conflict to arise. Understanding the basic processes and options regarding debt division in a divorce can make it easier to resolve these issues amicably. However, for specific guidance and information, contact Henderson Heinrichs LLP to set up your free 30-minute consultation. If you are facing a divorce and debt is an issue, we can explain your rights to you and help you to understand and navigate the process of dividing that debt up.

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