There are a number of reasons why people find themselves in debt, including unexpected job loss, health problems, marital breakdown, income tax, and financial mismanagement, to name a few. In a previous post, we discussed debt related to job loss. In this blog post, we will explore divorce in greater detail: what to do if you find yourself facing a marital breakdown, and the steps you can take to protect yourself from debt-related issues.
Why Does Divorce Cause Debt Problems?
There’s a saying about marriage that “two can live as cheaply as one,” referring to the financial benefits of sharing the costs of food, furniture, rent/mortgage payments, insurance, and so on. Unfortunately, most people aren’t prepared for the subsequent blow to their financial situation when they change from a double-income to a single-income household. Add to that some potentially costly divorce expenses such as settlements, support payments, and legal bills, and it’s very easy to see how you can be caught off-guard and fall behind on your financial obligations, following a divorce.
How Can You Prepare?
If you’re planning a divorce, always make sure that you’ve considered all factors, including changes to your cost-of-living. Settlements often include cash payments to ‘buy out’ large jointly-owned assets, such as houses. This can potentially place either party in a financially risky position if they are unable to keep up with living expenses in addition to these new settlement payments.
While the reality of the situation can be hard to accept, it may be advisable to consider down-sizing your housing arrangements and cut back on non-necessities, while you get back on your feet following a divorce.
What Happens If I (Or My Spouse) File For Divorce?
Many couples facing divorce fail to consider that they are both still responsible for their joint debts. If one partner in a divorce files for Bankruptcy when a co-signed debt is still outstanding, the other partner becomes solely responsible for the debt, regardless of settlement agreements.
How Can You Prevent This?
There are several solutions, depending upon a number of factors. When you divorce, it’s often a good idea to ask your bank or lenders to create two new loans, one in each of your names, to pay off the outstanding joint loan. Your bank may wish to raise the interest on the loans to account for the greater financial risk, but it can help to shield each of you from the other’s financial decisions moving forward.
You may also wish to consider negotiating the full repayment of joint loans as one of the conditions of the separation, or liquidating joint assets altogether, to ‘wipe the slate clean’.
Your family lawyer should be able to advise you further on the best course to eliminate joint debt as a part of your divorce settlement.
We Can Help
When it comes to debt-relief, you have a number of options, including credit counselling, debt consolidation, a Consumer Proposal, or Bankruptcy. Call today to schedule a free consultation with one of our compassionate and experienced Licensed Insolvency Trustees. We’re here to help you get a fresh start and lead a FULLER life.