Divorce & Separation Debt: Understanding Your Financial Options in BC

The Financial Impact of Divorce and Separation

Divorce or separation typically means dividing assets and liabilities between both parties. In British Columbia, the division of debt is governed by the Family Law Act, which treats both assets and debts acquired during the marriage as shared responsibilities. This means that even if the debt is under one person’s name, it may still be considered shared.

Debt can come in many forms during a divorce or separation, including:

1. Mortgage Debt: If you own a home together, one of the biggest decisions you’ll face is what to do with the property. This often comes with a hefty mortgage that needs to be addressed, whether you plan to sell, refinance, or transfer ownership.
2. Joint Credit Card Debt: Any joint credit cards or loans taken out during the marriage will also need to be addressed. Even if one person was primarily responsible for the spending, both parties may be held accountable for repayment.
3. Car Loans: If you share a vehicle, an auto loan will need to be dealt with in the division of assets and debts.
4. Student Loans: If one or both spouses took out student loans during the marriage, how these loans are treated will depend on when they were incurred and if they benefited both parties.

Debt Division in British Columbia

British Columbia operates under the Family Law Act, which outlines how debts and assets are divided when a couple separates or divorces. In most cases, all debt incurred during the relationship is considered family debt and is divided equally, regardless of whose name is on the account or who spent the money. Exceptions may apply for debt incurred before the relationship or debt considered “non-family debt,” such as a loan taken out for a spouse’s personal business that didn’t benefit the family.

For example, if you and your partner acquired a $300,000 mortgage on a home during your marriage, both of you are equally responsible for the remaining mortgage balance, even if one person moves out of the home.

The Family Law Act does offer some flexibility, though. If one spouse can demonstrate that taking on more debt than their partner is unfair or unreasonable, the court may adjust the division. This is why having a clear financial picture and professional advice is crucial.

Mortgage Debt in Divorce: What Are Your Options?

For many couples, the family home is the largest asset, and deciding what to do with it is one of the most significant financial decisions you’ll make during a divorce or separation. There are typically three options for handling mortgage debt:

1. Sell the Home: This is often the simplest solution if neither party wants to keep the home or if the mortgage debt is too much for one person to manage. Once the home is sold, any remaining equity can be divided between both parties.
2. Refinance: If one spouse wants to keep the home, they may refinance the mortgage to buy out the other party’s share. This typically requires qualifying for a mortgage on a single income, which may not always be possible, depending on your financial situation.
3. Co-own the Home Temporarily: Some couples opt to continue co-owning the home for a set period, such as until the children reach a certain age or the housing market improves. During this time, both parties are responsible for making mortgage payments, which can be challenging if finances are tight.

If you’re considering refinancing or selling your home during a divorce, working with a mortgage broker can help you explore your options and find a solution that fits your financial situation.

Protecting Your Credit During Divorce

Divorce or separation can have long-lasting effects on your credit if not managed carefully. Here are some tips to help protect your credit during this difficult time:

1. Close Joint Accounts: As soon as possible, work with your spouse to close any joint credit card accounts or loans. If this isn’t possible, ask the credit card company to freeze the account to prevent further charges.
2. Refinance Loans: If possible, refinance joint loans (such as car loans or a mortgage) so that they are in one person’s name. This ensures that you’re not held responsible for missed payments that aren’t your fault.
3. Monitor Your Credit Report: Keep an eye on your credit report for any unexpected changes or new debts that might have been overlooked during the separation process.
4. Make Payments: Continue making payments on any shared debts until they are officially divided. If your name is still on a loan or mortgage, missed payments will affect your credit, even if your former spouse was supposed to make the payment.

Working with a Mortgage Broker During Divorce

Navigating mortgage debt during a divorce or separation can be complicated, but you don’t have to do it alone. As mortgage brokers located in British Columbia, we specialize in helping clients through these transitions by providing expert advice and personalized solutions.

Here’s how we can help:

• Refinancing Guidance: We’ll help you determine whether refinancing the mortgage on your home is the best option and guide you through the application process.
• Selling Your Home: If selling is the right choice, we can help connect you with real estate professionals and guide you through the financing options for your next home.
• Debt Consolidation: If you have significant debt from the divorce, we can help you explore options for debt consolidation through refinancing or a home equity loan.
• Credit Recovery: We can offer advice on rebuilding your credit after divorce, including strategies for managing your debt, applying for new credit, and protecting your financial future.

Seeking Professional Advice

Divorce and separation are difficult, and managing debt during this time can feel overwhelming. That’s why it’s important to work with professionals who can guide you through the process. Whether you’re trying to figure out what to do with your home, how to divide mortgage debt, or how to protect your credit, having a mortgage broker and financial advisor in your corner can make all the difference.

If you’re facing divorce or separation in British Columbia and need help managing your mortgage or debt, our team is here to support you every step of the way. We understand the unique challenges that come with divorce and separation debt, and we’re committed to helping you find the right financial solution.

Conclusion

Divorce and separation debt is a complex issue, especially when it comes to mortgage debt and other shared financial responsibilities. In British Columbia, the Family Law Act ensures that debt incurred during the marriage is typically shared equally, but every situation is different. Whether you’re selling your home, refinancing, or navigating joint debt, working with a professional mortgage broker can provide the guidance you need.

If you have questions about your options or need assistance managing your mortgage debt during a divorce, don’t hesitate to reach out. Our experienced team here at Atomic Mortgages is here to help you navigate this challenging time and move forward with confidence.