There are two separate questions hiding inside the phrase “who owes this debt,” and mixing them up causes a lot of grief.
The first is what your lender can do. That depends mainly on what you signed. The second is how the debt gets sorted out between you and your former spouse. That depends on family law, on your agreement, and possibly on a judge. You can win the second argument and still receive a collection call about the first. A court order saying your spouse will pay the Visa will not stop the Visa company from coming after you if your name is on the account.
This is general information about Ontario law, not legal advice. Debt issues can overlap with insolvency, tax and business law, so please get advice on your own situation before you make significant decisions. The numbers below are hypothetical.
The creditor’s view: who signed?
Start by sorting your debts according to who is legally responsible to the lender.
Debts in one name only. Generally, only the person who signed is liable. If your husband took a car loan or credit card in his name alone, the lender normally cannot pursue you, even if you were married when it was taken out. That does not mean the debt is irrelevant between you, as discussed below.
Joint debts. With a joint mortgage, joint line of credit or joint credit card, each borrower is usually liable for the entire amount, not half. A lender can pursue whichever of you is easier to collect from, and the one who pays must then try to recover the other’s share.
Co-signed and guaranteed debts. If you co-signed your spouse’s car loan or guaranteed a line of credit for a family business, you may be on the hook when things go wrong, whatever the current state of your relationship. Trucking and small contracting businesses are common in Peel, and personal guarantees are often buried in the paperwork that the owner signed years ago. Find these documents now.
Supplementary cards. An authorized user on a credit card is often not liable for the balance, but card agreements differ, so check yours. The primary cardholder is typically responsible for what a supplementary user charges, so a separating primary cardholder should act quickly.
Necessities of life. A narrow exception is found in section 45(1) of Ontario’s Family Law Act. During cohabitation, a spouse has authority to make both spouses jointly and severally liable to a third party for necessities of life, unless the spouse has told the third party that the authority has been withdrawn. This does not make you liable for your partner’s shopping habit, and it is not something that lenders usually rely on for ordinary consumer debt, but it is a reminder that a debt in one name may not be the whole story during the time you were living together.
Why your separation agreement does not bind the bank
A separation agreement is a contract between the two of you. A court order in your family case generally governs the two of you as well. Your lender is not a party to either one, and it will usually keep its original rights unless it agrees to change the loan.
That is why careful agreements usually include an indemnity. It may say something like: “Sam will pay the joint line of credit and will indemnify Jordan for any amount Jordan must pay on it.” If Sam stops paying, the lender can still chase Jordan, but Jordan then has a right to recover the money from Sam. An indemnity is only as good as Sam’s ability to pay.
A stronger solution is to take your name off the debt altogether, for example by having the spouse who is keeping it refinance in their own name, or by paying it off from the sale of the home. Lenders are not required to agree to release you, so ask early, and build a deadline into your agreement. Otherwise, your credit report might carry someone else’s missed payments for years.
How Ontario counts debt between married spouses
Married spouses divide wealth through equalization under Part I of the Family Law Act, and debt plays a key role in that calculation. Net family property is broadly what you own on the valuation date, minus what you owe on that date, minus the net value of what you brought into the marriage (with an exception for a matrimonial home).
Some consequences of that formula are surprising:
Debt in your name lowers your net family property. A $30,000 line of credit in your name on the valuation date reduces your side of the calculation by $30,000. Since equalization splits the difference, the other spouse in effect bears half through a lower payment or a higher payment to you. So the debt is not “shared” in the usual sense, but it is taken into account.
Joint debts are generally split. If you both owe a joint debt, each of you normally lists half, unless there is evidence for treating it differently. For example, you might argue that a joint loan should be treated as entirely one spouse’s debt if that spouse alone benefited from it, and the facts support that.
Debts on the date of marriage count too. The date-of-marriage deduction is calculated as a net number, after subtracting what you owed at that time. There is a limit on debts related directly to buying or significantly improving a matrimonial home. Someone who came into the marriage with a large student loan and few assets may be in a different position from someone who came in with the same assets and no debt. It is worth finding old statements.
You cannot go below zero. Under section 4(5) of the Family Law Act, a net family property that is less than zero is treated as zero. As a hypothetical, say one spouse ends with an NFP of $200,000, and the other has $80,000 in debts and no assets. The second spouse’s NFP is treated as zero rather than negative $80,000. The equalization payment would be $100,000, half the $200,000 difference. In other words, the higher-earning spouse does not end up sharing the portion of the other’s debts that goes beyond zero, at least not through this formula. This surprises many people, and it can matter a great deal if one spouse has serious debt.
The valuation date and debts afterward
The valuation date is usually the date you separated with no reasonable prospect of resuming life together. Debts in place at that moment go into the calculation. Debts taken on later are generally your own for equalization purposes.
There can be grey areas. One spouse may charge the family’s groceries or a child’s tuition to a credit card after separation, or may pay down a joint debt out of their own income. Those amounts are not a part of the valuation date snapshot, but they may lead to a separate adjustment. Keep records of what you pay on joint debts after separation, and why.
Reckless spending can also be addressed. Under section 5(6) of the Family Law Act, a court may award an amount other than half the difference if equalizing would be unconscionable, having regard to specific factors, including debts incurred recklessly or in bad faith. That is a very high bar. A spouse who ran up a large gambling or day-trading debt shortly before separation may be challenged on this basis, but overspending of the ordinary kind generally will not be enough. Do not assume that a judge will erase a debt because it was unwise.
Common-law couples
Unmarried partners are not covered by the equalization rules. There is no net family property calculation, and generally each person is responsible for debts in their own name. Joint debts and co-signed loans are enforced in the usual way.
If one partner helped pay down the other’s debt, or a loan financed the other partner’s property, they may have a claim based on unjust enrichment or contract, but this is a different and more fact-specific road. Writing down the arrangement while you are still on speaking terms is invaluable.
Debts to family members
In many Brampton households, money for a down payment, a wedding or a business start-up has come from parents or siblings. When a separation happens, one spouse may insist it was a loan, and the other may be just as certain it was a gift. The answer matters, because a genuine loan is a debt that lowers NFP. A gift to one spouse may be treated differently, and a gift to both may produce no deduction at all.
A court looks for evidence: a promissory note, a repayment history, messages at the time, and consistent treatment in other documents like mortgage applications. A lender’s gift letter saying “no repayment required” can be very damaging to a later claim that the money was a loan. Expect close attention to any undocumented loan from relatives that surfaces after separation.
Debts owed abroad raise the same concerns, along with currency and proof problems. Gather what you can now.
Debt and support
Debt can also touch support, though it does not reduce income directly. A parent with an unusually high level of debts reasonably incurred to support the family before separation, or to earn a living, may have a basis for an undue hardship claim under section 10 of the child support guidelines, although that test is demanding and must also pass a household standard of living comparison. Debt may also be relevant in spousal support as a factor in a person’s needs and means. A debt payment is not, however, a licence to pay less than an order requires.
If bankruptcy is on the horizon
If your former spouse goes bankrupt or files a consumer proposal, your position depends on the debt. Lenders on a joint debt can usually turn to you for the balance. Under section 178 of the Bankruptcy and Insolvency Act, support obligations are among the debts that survive a discharge from bankruptcy. An equalization claim is a different matter. In Schreyer v. Schreyer, 2011 SCC 35, the Supreme Court of Canada held that the unsecured equalization claim in that case was a provable claim that was released by the bankruptcy discharge. This is a good reason to secure a property settlement with specific assets where possible, and to get prompt advice if you have reason to think your spouse may be insolvent. A licensed insolvency trustee can help you to understand the options if you are the one in financial trouble.
Steps to take this month
If you have just separated, or you are about to, some practical steps can limit the damage:
- Get your credit reports from both Equifax and TransUnion, and look for debts you did not know about or do not recognize.
- List every debt by creditor, whose name is on it, the balance on your separation date, and who has been making payments. Save the statement closest to that date.
- Contact lenders about joint credit. Ask about freezing or capping a joint line of credit or home equity line of credit, so that neither of you can draw it down further. A lender may require both signatures. Doing this may not be appropriate if one spouse relies on the line to keep the family afloat, so think it through first.
- Remove authorized users from your cards, and consider cancelling cards you do not need.
- Keep the minimum payments going on joint debts wherever you can, and pay in a way that leaves a clear record. A missed payment hurts both of you, whoever has agreed to pay.
- Do not hide or run up debt. Family court requires a sworn financial statement, and your debts will be examined.
- Avoid signing anything new with your spouse without advice, including a mortgage renewal or refinancing.
When you get to a settlement, make sure each debt is dealt with specifically: the creditor and account number, who will pay, by what date it will be paid or refinanced, and what happens in case of default. Add an indemnity, and consider security for it where the amount is significant. Vague language such as “each party will be responsible for their own debts” has a way of creating fresh disputes.
Our family law page explains the broader process, and our Brampton service page describes how to reach us locally if you would like someone to review your list of debts. Bring the list, your most recent statements and any guarantees you can find. Debt can feel shapeless and frightening, but once it is on paper, the questions usually become easier to answer.