Divorce & Debt – What Happens to Debt in a Marital Breakdown

One of the largest reasons for financial hardship that we see day to day in our office is sadly marital breakdowns. We understand that making the decision to end a relationship is not an easy one, and with the end of a relationship comes many questions including “What do we do about our debt?”

I recently met with a young woman who was overwhelmed by collection calls from creditors. She was adamant that she was not responsible for these debts, they belonged to her ex-husband. She was frantic for help in getting the collectors to stop. She had told them these weren’t her debts, but they just kept calling. We met with her right away and reviewed all of the documentation she had. I soon discovered that she had fallen prey to a very common misconception … she thought she had divorced her debt. Her separation agreement clearly indicated that her ex-husband had agreed to assume liability for a long list of joint credit cards as well as a joint line of credit. She had kept one credit card account that was only in her name, which she paid in full each month. He kept one credit card account that was only in his name. The agreement had been endorsed by the Court when the divorce was granted so she thought she was safe from the joint creditors.

Here’s the key … the banks and credit card companies don’t sign your separation agreement, so they aren’t bound by it. They don’t care what you agreed to, they are legally entitled to pursue collection from anyone who was originally liable for the account until they are paid in full. In this case, her ex-spouse had filed bankruptcy after the separation agreement and divorce were finalized so she was left with the joint debts. Even if he hadn’t filed bankruptcy, those creditors would have been entitled to try to collect from her and it would have been up to her to then collect back from him. She was understandably upset and it was clear from talking with her and reviewing her budget that she would never be able to repay these debts in full.

After reviewing her options, this young woman decided to file a consumer proposal to deal with the debts. The collection calls stopped immediately. She is paying approximately 30% of the total amount owing, without any further interest, over a period of 5 years. She can prepay the balance of the proposal at any time to finish early and speed up the recovery of her credit score. We are working with her on strategies to repair her credit while she is in the proposal. She finally feels financially independent and is looking forward to becoming debt free.
Does this apply to you? Maybe, maybe not. You are not liable for your spouse’s debts just because you were married, but joint debts will follow you until they are repaid in full and your name is removed from the account. The name on the monthly statement doesn’t prove anything. It’s complicated, so don’t guess or make assumptions, find out today. Call us at 310-NEWU (6398) for a free consultation to review your situation. We’re here to help!

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