Divorce and Debt: Who Has to Pay?

By Janet Hutchins on Jun 28, 2011 | Filed in Debt

Two of the most difficult financial situations that you are likely to face include debt and divorce. When the two are combined, it can become quite difficult to keep perspective. When it comes time to divorce, it is apparent that the division of debt — and who is responsible for it — is a big deal.

Who is Responsible for Debt?

In most cases, responsibility for debt is fairly cut and dry. If you have debt in your name, and your name only, you are responsible for that debt. You are not responsible for student loans that your spouse acquired, and you do not have to repay Revenue Canada if your spouse (but not you) owes back taxes. If you have kept your assets mostly separate, the question of debt during divorce is fairly straightforward.

Things get a little dicey, though, when it comes time to divvy up the joint debt. If you have joint credit cards, or other loans, the lender will hold you both responsible for the payment of the debt. In many cases, it is best to use joint assets to pay of joint debt so that you can both get a new start. However, there are some instances in which this is not possible. You can either divide up the debt according to income that you both make, or by using some other means. You will have to make sure that your ex pays, though, or your own

Debt secured by different assets normally goes with the asset. So, if you take a car that still has a loan on it, you will likely be assigned the responsibility of repaying the auto loan. Another possibility is to assign joint debts with relation to the assets and income each partner had at the beginning of the marriage. Partners share out the wealth accumulated during the marriage — as well as the debt. If you can’t settle on an arrangement before the divorce, the lawyers and the courts can work it out, usually with an eye toward each individual’s own assets, as well as joint assets acquired during the marriage with relation to what was owned prior to marrying. The whole process can be quite emotional, but it is something that has to be done.

It’s a complex question, and one that requires thought. If possible, it’s best to just pay off as much as of the joint debt as possible before the divorce, using joint assets. That way, you can close joint credit accounts and move on. You will both likely take a hit to your credit score, but that is likely to happen no matter how the divorce falls out.