Debt After Divorce

Sunday, August 27, 2017 - 20:45

Debt and Relationships

Managing debt after divorce can be overwhelming for many people. Take solace in knowing that you’re not alone.

In fact, almost one in five insolvencies (which include bankruptcies or consumer proposals) in Canada involve someone who has had a marital or relationship break-up. And it’s completely understandable as to why.

Below we’ve listed the top three reasons divorced individuals face problematic debt.

  1. Being back on your own again is expensive.
    If you’ve just gotten divorced, you’ve likely gone from running your household on a budget of two incomes down to one. And even though you’re on your own, your expenses actually go up.

    Two people can live more cheaply together than two separately. You’re now 100% responsible for your own rent, utilities, heat, and food.

    Women are often thought of as being at a greater disadvantage after a divorce. They typically have lower incomes and are awarded custody of any children from the divorce, which adds substantially to the financial household expenses.

    That said, it shouldn’t be forgotten that men who were the breadwinners in the relationship must pay child support, which can leave them little to pay their own bills.

    Either way you slice it, it’s more difficult all around to make ends meet on your own post-separation.
  2. You’ve got legal costs to pay.

    Over and above your regular bills, which have increased after the split by virtue of being on your own, you’ve got bills related to your divorce to pay. These include court costs, lawyer fees, and settlements.

    These costs aren’t chump change, either. According to a 2016 survey by Canadian Lawyer magazine, these legal costs range from an average $1,772 for an amicable split to as high as $46,578 for a contested divorce.
  3. You and your ex are 100% responsible for your joint debts.

    While assets are usually divided equally in a separation, debts in both you and your ex-spouse’s name cannot be equally split. Your lender sees each of you as responsible for 100% of the jointly held debt.

    And this is true no matter what your divorce agreement might say. So for example, even though your agreement might set out your ex as being responsible to pay a particular debt, the bank can come after both of you if your ex defaults.

    What if you had the unfortunate experience of your ex running up your joint line of credit right before separation, and all without your knowledge? Again, the bank can still hold you responsible.

    You should also be aware of the repercussions that defaults on joint debts will have on your credit rating. If you or your ex-spouse missed payments or made late payments on joint debts, these will show up on your credit score, regardless of whose responsibility it was to pay them.

    Finally, be mindful that if your ex files bankruptcy, those creditors can still look to you to pursue the full balance.