How To Deal With Divorce And Bankruptcy
Divorce And Bankruptcy
There are several other problems that are often linked to financial issues.
Relationship troubles are often related to money problems, with a divorce or relationship breakdown being one of the major causes of bankruptcy in Canada.
Some people might already be experiencing financial difficulties before the end of their relationship.
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In fact, disagreements over finances can contribute to the breakdown of a marriage or relationship.
Other people can find that separating from their partner leads them into financial difficulties.
With expenses such as legal fees, child support payments, and living expenses, as well as potentially having a lower household income, many people can struggle after a divorce or separation.
The Link Between Divorce and Bankruptcy
When it comes to financial problems and bankruptcy, either one could come before the other.
Although the end of a relationship could lead to bankruptcy, disagreements over money is also a leading cause of divorce.
68% of respondents to a survey by the Bank of Montreal said that fighting over money was their number one reason for divorce.
If a couple is already having financial difficulties, divorce or separation could lead to further problems.
However, even when there aren’t already existing financial problems, divorce can lead to bankruptcy due to the expense of separation.
Separation means that couples no longer share expenses, making living more expensive for both of them.
Generally, living as a single person is more expensive than living as a couple because you’re not able to share your expenses with someone else.
An increased cost of living, which could include the requirement to pay alimony or child support payments, could lead to debt problems and perhaps even bankruptcy.
Bankruptcy and Alimony/Support
Getting divorced often means having to pay alimony to your ex-spouse and child support payments.
However, when you file bankruptcy, these payments are not affected.
Although many of your debts will be discharged in bankruptcy, these financial obligations are dealt with by a court order or a separation agreement.
Bankruptcy can’t change this, and they must be agreed by both parties or altered by the court.
If your payments are in arrears, bankruptcy cannot change this.
It must be dealt with by communicating with your ex-spouse or by contacting the family responsibility office.
Although these options won’t remove your support payments, they can help you to deal with your other obligations.
They allow you to deal with the other debts that you have, making it easier to manage your finances.
If you can get your finances in order, you can keep paying your support payments for easily or find ways to deal with any arrears that you might have accumulated.
How Shared Assets Are Dealt With in Divorce and Bankruptcy
When a couple gets divorced, their shared assets are distributed between them or money is paid from one person to the other so that their assets are shared equally.
If either half of the couple files bankruptcy, what happens to their assets depends on whether the divorce comes first or the bankruptcy comes first.
If the couple is already divorced, the other person’s assets won’t be affected by one of them filing bankruptcy because their assets have already been separated.
However, if one person files bankruptcy before the completion of a divorce, shared assets will be dealt with differently.
For example, if there is equity in a property owned by a couple, half of it will become an asset that is considered in the bankruptcy.
Anyone who is in the process of getting divorced should be careful about filing bankruptcy before the divorce is complete.
It is best to talk to your divorce lawyer and your Licensed Insolvency Trustee to ensure you make the right decisions.
What Happens to Joint Debts in a Divorce
If a couple has joint debts, where both of them are responsible for paying the debt, it is important to consider these during a divorce and when filing bankruptcy.
Although one partner might agree to pay for a joint debt, this doesn’t relieve the other person of their responsibility.
If one person who shares the debt files bankruptcy, the joint debt will then become the sole responsibility of the other person.
When you share a joint debt, it is best to speak to the creditor about it and arrange new loans or lines of credit.
Filing a Consumer Proposal Separately vs Jointly
Sometimes both ex-partners might want to file a consumer proposal or bankruptcy if you share large joint debts.
It is possible to do this individually, or you can choose to do so jointly, even if you are divorced.
Filing jointly could save you money and it’s a good option if you have separated amicably or are able to get along.
Joint debts will only be counted once, whereas they will be counted twice if you file separately and you will end up paying more between you.
Bankruptcy During the Process of Divorce or Separation
If you are considering filing bankruptcy or a consumer proposal, it is best to wait until your separation or divorce is finalized.
Trying to do so before this can only complicate both issues, making it more difficult to handle your finances and potentially making your separation more tense too.
While there is technically nothing stopping you from filing bankruptcy or a consumer proposal while you are going through a divorce or separation, it’s best to wait if you are able to.
It can be smart for couples to keep separate finances with their own bank accounts.
If you are in the process of separating, ensuring you have your own bank account and credit cards can help you to protect your finances.
If you are thinking about bankruptcy after a divorce, find a Licensed Insolvency Trustee who can help you to make the right decision.
We can help you to find a local trustee who will help you with the process.
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?