Debt Relief Experts
In Canada, you are not responsible for your spouse’s debt unless these debts are joint. Canadian law treats financial obligations as distinct from marriage. Only the spouse who signed for and incurred the debt is legally obligated to repay it.
When one spouse faces financial difficulty, it’s natural to worry about whether you’re legally responsible for their debts. Understanding your rights and responsibilities regarding family debt can help protect your financial future.
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What Debts Am I Legally Responsible for in My Marriage?
Individual Debt vs Joint Debt
Pre-marital debts are not automatically joint just because you are married or in a common-law relationship. However, if you later agree to consolidate or co-sign your partner’s debt, you become legally liable for repayment. New debts in a marriage can be more complicated. They may be personal debts owed by only one spouse or joint debts.
When it comes to spousal debts, you are not responsible for:
- Credit card debt in your spouse’s name only
- Personal loans and student loans they obtained independently
- Business debts under their name
You become jointly responsible when:
- You co-sign or guarantee a loan
- Both spouses sign as co-borrowers
- You hold joint credit cards or lines of credit
- The debt is secured against jointly owned property
Debt and Marital Assets
Large debts like mortgages, lines of credit or a family car loan are often issued jointly to married couples. Lenders typically examine both spouses’ debt-to-income ratios before approving such loans. If the debt is a secured loan, a creditor can repossess the asset or collateral if the loan defaults.
But what about unsecured debts like credit cards or tax debts. Can an unsecured creditor pursue marital property for money owed by one spouse? The answer is yes, but it’s complicated. An ordinary unsecured creditor, like your bank or a utility company, could obtain an order from a judge allowing them to place a lien on a debtor’s property, including the family home. The Canada Revenue Agency can place a tax lien on the property of the debtor without a court order.
How Do Joint Credit Cards Work?
Credit cards can affect spousal debt responsibility in two ways:
Joint Credit Cards: Both individuals sign up for the card and are responsible for the entire amount, not just half. Both spouses are legally liable for the full balance.
Supplementary Credit Cards: These are additional cards linked to a primary account. Usually, only the primary cardholder is responsible for the debt. However, some credit card agreements may include clauses making supplementary cardholders responsible if they use the card.
Should You Co-Sign a Loan for Your Spouse?
While it might seem like a way to help your partner qualify for better rates or terms, co-signing is a major financial commitment. Before co-signing any loan, consider:
- Your own credit score and borrowing needs
- Your spouse’s ability to make payments consistently
- Whether you can afford the payments if your spouse cannot pay
- The impact on your own borrowing capacity since co-signed debt appears on your credit report
- Whether there are alternatives like building credit independently
Our best advice is to only co-sign if you’re willing and able to take on the debt yourself. When you cosign or become jointly responsible for a debt, it’s important to remember that joint debt doesn’t mean each person is only responsible for half. Joint debts typically come with “joint and several liability,” meaning each person is legally responsible for the entire debt amount. If one spouse can’t pay, the other becomes fully responsible for the remaining balance. This is why you should think carefully before consolidating spousal debts with a joint consolidation loan.
Can My Spouse’s Debt Affect My Credit Score?
Your spouse’s credit score won’t directly impact yours. Credit reports list only accounts in your name and your personal credit history. However, your credit score could be affected if:
- You share joint credit accounts
- You’ve co-signed on any of their loans
- You’re both named on a mortgage
- Shared bills go unpaid
What Happens to Marital Debt in Divorce?
During divorce or separation, debt division becomes more complex:
- You cannot contract out of a joint debt without the creditor’s permission
- A separation agreement splitting debt 50/50 doesn’t change your obligation to creditors
- Joint debts remain the responsibility of both parties until fully paid
- Secured creditors retain collateral rights over property divided in a divorce
Joint credit card liability in a divorce can become a problem if not handled correctly. If you have joint credit cards, we recommend cancelling them before separation to ensure an ex-spouse does not run up balances you may be responsible for repaying.
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What Happens if My Spouse Files Insolvency?
If your spouse files bankruptcy or a consumer proposal, and you are not considered a joint debtor, their filing will not affect you.
However, if you have joint debt and one spouse files a consumer proposal or bankruptcy, your creditors can, and likely will, pursue the co-signer for collection.
If both spouses are experiencing debt problems, each person can choose their debt solution based on their individual situation. Each spouse can choose between a debt management plan, bankruptcy or consumer proposal to deal with their debt.
If both spouses share substantially the same debts, they have two options: They can each file a bankruptcy or proposal, or they can file a joint bankruptcy or joint consumer proposal. This can simplify the process and potentially reduce total payments. Filing a joint consumer proposal deals with both joint debts and individual debts.
How Can I Protect Myself from Marriage Debt?
What we typically see in a marriage is a mix of debts: yours, mine, and ours; your existing and new debt, my existing and new debt, and joint debt accumulated since we married.
The key to managing debt in a marriage is open, honest communication and a commitment by both partners to work together to pay off debt so you can build a less financially stressful life together.
Here are my top tips for dealing with marriage debt:
- Discuss repayment plans before combining finances
- Create and follow a family budget
- Maintain separate credit accounts if concerned about spending habits
- Monitor your credit report regularly
- Postpone major purchases until existing debts are managed
- Think carefully before cosigning on premarital debts
- Avoid joint bank accounts at institutions where one spouse has debt. Banks have a right of offset, meaning they can withdraw money from your account to pay debts owed to them.
- Consider a prenuptial or cohabitation agreement
- Make joint decisions about new debt.
Remember that without a legal agreement with the creditor, you are not responsible for your spouse’s debt. However, once you sign on the dotted line, “joint and several liability” means you’re responsible for 100% of any joint debt, not just half.
If debt is causing strain on your marriage, solutions are available. As Licensed Insolvency Trustees, we can review your situation and explain options like consumer proposals or bankruptcy that could help resolve overwhelming debt.
Contact Hoyes Michalos for a free, confidential consultation to understand your rights and explore debt relief options that work for your family’s unique situation.
