What happens to joint debts when we divorce in Ontario?
Under Ontario's family property equalization system, debts reduce a spouse's net family property — meaning debts are factored into who owes whom the equalization payment. However, equalization is an internal accounting between spouses. It does not change the legal relationship between you and your creditors.
If you and your spouse have a joint mortgage, joint line of credit, or co-signed loan, the lender does not care about your separation agreement. Both of you remain equally liable to the lender until the debt is refinanced, paid off, or the lender agrees to release one of you. A separation agreement that says "my spouse will pay the car loan" gives you a contractual right to go back to court if they don't pay, but it does not stop the lender from coming after you if they default.
This is why handling joint debts at the time of separation is important. Where possible, joint accounts should be paid off, closed, or converted to sole-name accounts before or as part of the separation process. If the matrimonial home is being sold, the mortgage is typically discharged from proceeds. Getting legal and potentially financial advice when navigating joint debt in a divorce is strongly recommended.
Key takeaways
- Joint debts reduce net family property in the equalization calculation.
- Separation agreements assign debt responsibility between spouses but do not bind creditors.
- Both spouses remain liable to lenders for joint debts until those debts are refinanced or paid.
- Closing or converting joint accounts at separation reduces future risk.