Many a times the most contentious aspect of going through a divorce can be the division of property between the spouses. The law in order to make certain the implication of a divorce has provided for several mechanisms.
Generally, each party to a divorce first determines their respective ‘net family property’ owned by them on the date of separation, excluding any gifts or inheritance (kept separate from the matrimonial home or property). Net family property is determined by taking the total assets of both parties on the date of separation, subtracting the pre-marital cost (if applicable; with exception to the matrimonial home), and subtracting any debts, the amount which remains is the ‘net family property. After determining each partners net family property, the spouse with the higher net family property is required to pay half the difference between theirs and the other partners net family property. This is known as the equalization of net family property payment.
The questions however which need be asked are what, the status of is, and who is responsible for, the joint debt incurred during the course of the marriage by the spouses.
The answer this question, ‘joint debts’ need to be better understood. Any debt incurred by a spouse individually, like for instance any sort of pre-marital debt, or student loan or a solely authorized credit card debt is an individual debt and not a joint debt. For the individual debt the party who has incurred it is solely liable. That being said there are also debts considered to be joint debts; normally these debts arise when both spouses may take out a loan as co-borrowers or perhaps if one spouse, or the other, co-signs for a loan for his/her husband or wife.
Therefore, generally there can be three kinds of joint debts;
- Joint Credit Cards: it is important to note there is a difference between a joint credit card and a supplementary credit card. A supplementary credit card does not give rise to a joint debt and only the primary credit card holder is liable. With a joint credit card nevertheless, all parties, it is issued to, are liable to payback the entire amount and not just their proportionate amount.
- Co-signed and Joint Secured Debts
- Joint bank accounts and/oroverdrafts
Once a joint debt is incurred it is important to understand that all parties liable owe the entire amount and not just a proportionate amount back to the lender. A joint debt cannot be divided even upon separation or divorce of the spouses. However, it may be, and indeed it is part of the risk that parties should be educated and aware of when incurring joint debt, that one of the co-debtors may escape their liability by filing bankruptcy for instance.
As stated, joint debts can not be divided even upon separation or divorce despite whatever the divorce or separation agreement or arrangement is between the spouses. However, if one of the spouse’s files bankruptcy under the Bankruptcy and Insolvency Act, and thus is unable to pay back the debt, the creditor or lender is still lawfully able to pursue the other co-debtor for the entire amount owed on the debt despite any thing agreed upon in the separation or divorce agreement.
Also, a bankruptcy filed before or after the finalization of divorce can effect how the assets are dealt with in the property division which occurs after divorce. If bankruptcy is filed before the finalization of the divorce the assets held by the bankrupt spouse are no longer counted in the net family property and cannot be used in any equalization payments. On the other hand, provided not don’t fraudulently, if the divorce is finalized before bankruptcy is filed the assets are no longer available to the lenders or creditors.
JOINT DEBTS IN A BANKRUPTCY SITUATION:
There are several ways in which joint debts may be dealt with in a divorce situation. Some of the options available are;
- Bankruptcy or a Joint Bankruptcy
- Consumer proposal or a Joint Consumer Proposal
Which option works best is one which differs from case to case, and ultimately can only be decided upon after a complete financial assessment is made. In this regard the services of competent family and insolvency law lawyers is recommended.
An alternative to bankruptcy is the consumer proposal agreement. A consumer proposal agreement is a legally binding debt relief solution entered into by the debtor with the creditors that can serve to reduce any debt owed by up to 70-80%.
A consumer proposal is a legally binding debt settlement arrangement filed with a Licensed Insolvency Trustee to repay your debts for less than you owe. The savings can be substantial. It is not unusual for someone to reduce their debts by as much as 70%-80%. In exchange for making your agreed upon payments, you keep your assets and eliminate your debt. It is a legislation sanctioned method of debt relief under the Bankruptcy and Insolvency Act and once filed though a Licensed Insolvency Trustee grants protection to the debtor’s assets from the lenders and/or creditors the debt is owed to.
A Consumer Proposal can;
- Help reduce debts by up to 70-80%
- Provide protection to the debtor’sassets from creditors or lenders
- Freeze any interest on the debts
- Consolidate debts into monthly payments
There are however certain things to keep in mind before filing a consumer proposal, that although consumer proposal can deal with most unsecured debts, most secured debts such as a mortgage or a secured loan are not covered. That being said even in the case of unsecured debts, in order to be able to file a consumer proposal the debtor must;
- Be able to pay a portion of the debt
- Be able to make monthly payments (calculated on an income surcharge, spousal and child support payments are deductible)
- Not owe an unsecured debt exceeding $250,000; and
- be greater than the value of the assets owned by the debtor
To find out more about your specific case please contact one of our experienced Divorce Lawyer serving Markham today.Back