7 Vital Insights on Divorce and Debt: A Comprehensive Guide
When marriages dissolve, financial complications often follow. Understanding the complex intertwining of divorce and debt is crucial for navigating this challenging period. This guide will enlighten you on the 7 things to know about divorce and debt, ensuring you are well-informed and prepared.
1. Distinguishing Joint from Individual Debt
Marriage does not automatically bind you to your spouse’s financial obligations. A debt held individually by you or your spouse remains so, regardless of the marriage’s status.
Co-signing a Debt
Be aware that co-signing a debt for your spouse makes you liable for that debt if they default, irrespective of whether the marriage survives or not.
2. Understanding Shared Credit Responsibility
Credit Agreements: The Significance of Signatures
In credit agreements, the key factor is who signed for the funds. The intended beneficiary of the debt is irrelevant. If your name is on the agreement, you are accountable for the debt to the lending institution. This can spark discord if one spouse accesses funds while the other only agreed to co-sign.
The Fine Print Matters
Banks and financial institutions typically rely on the contract’s stipulations. It’s crucial to understand your contractual obligations when signing any financial agreements.
3. Debunking Misconceptions about Joint Debt
Joint Debt: 50% or 100%?
A widespread fallacy about joint debt is the belief that each partner is only 50% responsible. The reality is that joint debt implies a 100% responsibility for both partners. If one spouse is unable to repay, the lender will seek full repayment from the co-signer.
4. Safeguarding Your Finances during Divorce
Protecting Your Credit Facilities
Determining the primary and secondary cardholder for each account is essential. If there’s a risk of your spouse incurring additional debt, consider removing them as a secondary cardholder.
Freezing Accounts
Freezing certain accounts can prevent additional debt from being incurred. This allows account holders to only make payments and not increase the balance.
Prioritizing Payments
Protect your credit score by ensuring timely payments on joint debts, at least until a legal agreement is reached.
Refinancing Secured Loans
Refinancing secured debts under one name might be a viable option. Generally, the spouse retaining the asset will refinance it under their name, if they qualify.
5. Engaging a Licensed Insolvency Trustee
The Role of an LIT
A Licensed Insolvency Trustee (LIT) can guide you through various debt relief options, helping you understand when to file a consumer proposal or bankruptcy. They can provide a comprehensive plan tailored to your unique situation.
Legal Advice
Apart from consulting an LIT, it’s essential to seek legal counsel. A lawyer can advise on the optimal time to file for insolvency.
6. Continuing Support Payments Post Divorce
Support Payments: Non-negotiable
Even in the event of a consumer proposal or bankruptcy, support payments must continue. They are a non-discretionary expense, determined based on the children’s interest. An LIT can help you understand how much you can expect to pay or receive and assist in budgeting accordingly.
7. Budgeting Your Post-Divorce Life
Planning for the Future
Post-divorce, focusing on your income and expenses becomes paramount. If your earnings are insufficient to cover debt payments, it may be time to consult an LIT. Setting emotions aside and taking proactive financial decisions is vital.
A Licensed Insolvency Trustee can guide you through the maze of divorce and debt, helping you understand your options without any obligation.
