How To Manage Debt In Divorce

How To Manage Debt In Divorce

Written by Matthew Taylor
Fact-checked by Caitlin Wood
Last Updated August 12, 2021

Sometimes marriages don’t work out, and it comes time for you and your spouse to divorce. One of the many things that can slip through the cracks when going through the stress of a divorce is the repayment of debts. You are responsible for any debts you’ve incurred, and you may be responsible for any joint debts. There are many types of debt to keep track of, and how responsibility for repayment is divided can ultimately be up to the courts. Ensure that you continue to pay off your debts during your divorce so that your credit score isn’t negatively impacted.

Learn how to deal with debt in a marriage.

Types Of Debts To Consider During A Divorce

There are many types of debt to consider during a divorce. Some are easy to forget about, while some easily come to mind. Debts to consider during a divorce include are

  • Balances on credit cards
  • Other types of consumer debt (personal loans, lines of credit)
  • Mortgages
  • Child support payments
  • Car loans
  • Student loans
  • Arrears on personal accounts

Depending on whose name is on an account or if you’re holding joint debt with your spouse, you may or may not be responsible for paying off these debts.

Who Is Responsible For The Debt In A Divorce?

Usually, whoever incurred the debt is responsible for paying it off. That means if you have a credit card and are the primary cardholder, you are responsible for paying it off. If you have any joint debts, such as a mortgage, both you and your spouse are responsible for the full debt. If you both have several joint debts, you and your spouse can come to an agreement to assign the responsibility of paying off the joint debts to each other. Note that this agreement is not legally binding, and your creditors will still hold both of you responsible for paying off any joint debts.

Check out the pros and cons of a joint account.

How Is Credit Card Debt Affected During A Divorce In Canada?

The courts ultimately decide how credit card debt is split up if there are no arrangements made before your divorce. If the debt is in your name, your creditors will expect you to pay it off, even if your spouse spent the money.

You should get your lender to freeze any joint credit cards and to remove your spouse from cards where they are the secondary cardholder to prevent them from spending any more money and adding to your debt. You should also continue making the minimum payments on the debt until the legal system can sort out your debts. You could also pay off the debt in full or transfer the balance of the debt to a new account that only has your name on it. 

Lookout Avoid These Mistakes When Paying Down Debt

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How Is Secured Debt Affected During A Divorce In Canada?

Secured debt is debt that has assets attached to it, such as an auto loan or a mortgage. Selling these assets, like a vehicle or house, and splitting the proceeds with your spouse is the best way to deal with secured debt during a divorce. You could also buy out your spouse’s half of the debt or get the courts to sort out how your debt should be divided. If you’re dealing with an auto loan, talking to your lender about refinancing the vehicle under just your name or your spouse’s is the best way to go.

Find out how to deal with a joint mortgage during a divorce.

How Is Joint Debt Affected If Your Ex Files For Bankruptcy?

If your spouse files for bankruptcy and owes joint debt, you will be responsible for the full amount of the debt. Lenders and creditors will still want to be paid. If you choose to ignore it, your credit score can be impacted and the lender may decide to sell your debt to a collection agency which can further hurt your credit. The best way to seek advice and support regarding joint debt during a divorce is to seek legal advice. 

Learn more about how divorce can affect bankruptcy.

Divorce, Debt, And Credit Scores

One of the unexpected consequences of divorce can be a battered credit rating. It can be tricky to determine which debts are yours to pay and which debts your spouse is responsible for. If you end up not paying debts that you’re responsible for, your credit score can take a hit.

That being said, the simple act of filing for divorce or going through divorce proceedings will not affect the credit scores or credit reports of you or your spouse. You may only start having trouble if you hold or continue to hold joint credit accounts, provided you don’t keep making payments on them.

Joint Accounts

Your divorce decree, which is the final judgement on the terms of your divorce from the courts, can dictate how your debts are split up. Any joint accounts may be the responsibility of both yourself and your spouse, or the responsibility can shift to just one party. If your name remains on any account, you may be responsible, and any missed payments can show up on your credit reports and affect your credit score. 

Check out how your assets are divided in a divorce.

Child Support Payments

Missing child support payments can stay on your credit reports for up to eight years, which can negatively impact your credit score. Make sure to keep making child support payments during a divorce to prevent this problem from happening.

Credit Card Limits

If a creditor reviews your credit card accounts, you may end up with a lower credit limit on your cards because only your income, and not your spouse’s, is considered. Your debt to credit utilization ratio will change, potentially affecting your credit score.

How To Manage Debt During A Divorce

Remaining on good terms with your spouse during your divorce is obviously one of the best steps you can take if you have any amount of debt to deal with. In addition, you should consider the following steps.

  • Be honest with your spouse and your divorce lawyer(s) about how much debt you have
  • Freeze any joint credit card accounts so that only payments and not charges can be made to the card
  • Make only the minimum payments until the legal system can work out how to split up and repay the debt 
  • Remove your spouse as a secondary cardholder on any credit card accounts so they cannot rack up any debt that you will be responsible for
  • Consider selling your home and dividing the proceeds or buying out your spouse’s share of the home
  • Refinance any vehicles you owe money on under one person’s name rather than under the name of both you and your spouse

Ultimately, speaking with your divorce lawyer about the debt you carry, whether it’s joint debt or individual debt is the most important thing you can do. Everyone’s financial situation is different and therefore there is no one size fits all when it comes to advice on dealing with debt.

Debt In Divorce FAQs

What happens if I was unaware of a debt I owed? 

Unexpected debt can be a nasty surprise. You and your spouse should pull your credit report to identify all the debts both of you owe. If you don’t do so, you could be in for a shock. You will be responsible for any debt that is in your name, even if your spouse spent the money.

What happens if I pay off my portion of the debt but my spouse does not?

You should seek legal advice to find a resolution to this issue. While waiting for the issue to be resolved by the courts, you should make payments on the debt to prevent it from going to collections and from damaging your credit score. You should keep records of these payments, especially because ultimately you might not be responsible for them.

Can individual debts be split in a divorce?

Yes, individual debts can be split in a divorce. Provided there are no arrangements that were made before your divorce, the court may decide to split up individual debts.

Will I be responsible for my spouse’s debts?

If you and your spouse have not split up your debts before your divorce and have not made arrangements to pay down your debts individually, you may be responsible for your spouse’s debts. The courts will decide how to split your debts. Lenders and creditors still expect to be paid, and the person whose name the debt is in is responsible for paying it off. 

Bottom Line

One of the things that can slip through the cracks when you’re going through a divorce is debt repayment. It can be tough to determine what debts you’re responsible for and which you’re not, but in general, whoever incurred the debt is responsible for paying it off. If you and your spouse cannot come to an agreement on how to manage your debts, you can get the issue settled through the courts. The best ways to manage debts during a divorce are to remove your spouse as a secondary cardholder from any credit cards you hold jointly, freeze any joint accounts you hold, refinancing any auto loans under the name of one person rather than having a joint loan, selling your home if it is jointly owned and splitting the proceeds, and to continue making the minimum payments until the courts can decide who is responsible for the debt. Otherwise, your credit score may take a hit.

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Matthew joined the Loans Canada writing team in 2021 while was finishing up a Bachelor's degree at the University of Saskatchewan. It was there that he discovered his love of writing. His work has appeared in several publications, including the Canadian Student Review and In his spare time, Matthew enjoys reading, geocaching, and spending time with his family and pets.

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