When people think about divorce, they usually focus on dividing assets like houses, pensions, and savings. However, debt is just as important. Understanding how debt is handled during divorce can help you make informed decisions and avoid unpleasant surprises as you move forward.
When you begin a divorce, one of the first questions you may ask is, “What happens to all of our debt?”
It’s a fair question.
Most couples accumulate some form of debt during a marriage, whether it’s a mortgage, credit card balances, vehicle loans, lines of credit, or business obligations. Just as assets must be addressed during a divorce, so must debts.
The challenge is that many people focus only on what they own and forget about what they owe.
Debt Is Part of the Overall Financial Picture
One of the most important things to understand is that debt is generally considered alongside assets when your financial affairs are being divided.
You cannot look at one without the other.
For example, you may want to keep the family home after separation. But if the house comes with a large mortgage and other financial obligations, keeping it may not be as beneficial as it first appears.
That’s why it’s important to look at your entire financial picture before making decisions.
Not All Debt Is Created Equal
Some debts were clearly incurred for the benefit of the family. Others may be more complicated.
Questions often arise such as:
- Was the debt accumulated before the relationship?
- Was it incurred during the marriage?
- Was it incurred after the separation?
- Is the debt jointly held or in one person’s name?
The answers to these questions can affect how debt is addressed during settlement discussions.
Don’t Assume the Bank Cares About Your Divorce Agreement
This is one of the biggest misconceptions I see.
You and your spouse may agree that one person will take responsibility for a particular debt. However, if both of your names remain on the loan, the lender may still pursue either of you for payment if the debt goes unpaid.
A separation agreement can create obligations between you and your former spouse, but it does not automatically change your contract with the bank or lender.
That’s why part of the divorce process often involves refinancing debt, closing accounts, or removing names from joint obligations whenever possible.
Focus on Practical Solutions
In Mediation and Collaborative Divorce, we spend a great deal of time looking at practical solutions.
The goal is not simply to divide debt equally. The goal is to create an arrangement that is realistic and sustainable moving forward.
Sometimes that means one spouse assumes more debt in exchange for receiving more assets. Sometimes it means selling property and paying off liabilities. Every family is different.
The most successful outcomes occur when both parties fully understand their financial situation and focus on long-term stability rather than short-term emotions.
FAQs
Q1: Am I responsible for debt that is only in my spouse’s name?
You may not be responsible to the party to whom the debt is owed, but that does not mean that it will not be considered as a family debt to be considered when dividing up assets.
Q2: Can we agree that my spouse will pay a joint debt?
Yes. However, if your name remains on the account, the lender may still hold you responsible if payments are missed.
Q3: Should debt be addressed before the divorce is finalized?
Absolutely. Debt division is an important part of resolving your financial affairs and should be addressed as part of your overall settlement.
Pierre Boileau
Over almost 35 years of practice Pierre Boileau, K.C. has gained experience as a Mediator, Collaborative Family Lawyer, Litigator and now as an Arbitrator. Pierre’s extensive experience has shown him that client satisfaction is maximized when clients have control over their own future. This can best be achieved through interest based negotiation. Only as a last resort, should litigation be considered. When necessary, Pierre relies upon his vast court experience and training.
Pierre remains committed to continuing to practice at a high level with particular care, interest,and sound judgment. He doesn’t shy away from particularly challenging cases. Pierre’s greatest reward comes from the satisfaction of assisting clients through one of the most challenging experiences of their lives.