Property division on divorce and separation of family debt can be very contentious. Spouses may fight tooth and nail for their share of the assets but then refuse to take any responsibility for debt. Let’s look at what the law says about dividing debt at the end of a marriage.
How is family debt divided?
We recently discussed the division of assets after divorce. The basic rule is that all family property is shared equally, unless the spouses make a different agreement. The same is true of debt: family debt is shared equally unless the spouses agree to divide it differently.
What is family debt?
Family debt includes all debts incurred by either spouse from the start of the relationship up until the date of separation. Debt taken on after the date of separation may also qualify if incurred to maintain family property. Common examples of family debt are mortgages, credit cards, lines of credit, overdrafts, and loans from banks or family members. Tax liabilities and business debts can also be family debt.
What if the family debt is not in my name?
It does not matter if the debt is in only one of the spouse’s names. It also does not matter if one spouse was unaware of a debt incurred by the other spouse. Both spouses are equally responsible for the debt on separation. That is a frightening prospect if you are separating from a spouse who was financially reckless or secretive about spending habits.
Can we agree to an unequal division of debt?
On separation and divorce, property division and responsibility for debt can be resolved by agreement. Spouses can negotiate unequal division of assets or debt and enter into a written separation agreement to that effect. We highly recommend that you get legal advice so that you understand your rights and obligations before making any agreement to divide property or debt. Consider this: creditors can still come after you for payment of a debt that is in both of your names, even if you and your spouse have agreed that you will not be responsible for paying it. A lawyer can ensure that your separation agreement contains a mechanism to address this situation.
What if equal sharing of debt is not fair, and we can’t agree?
If the spouses cannot agree on the division of assets and debts, the court can decide. Under BC family law, a court can divide family debt unequally if it would be significantly unfair to make one spouse pay half. The court will look at factors such as how the debt was incurred, the ability of each spouse to pay a share of the debt, and whether one spouse did something after separation to significantly increase the size of the debt.
For more information and legal advice about family debt, reach out to one of our experienced divorce lawyers.