How Separation Agreements Handle Debts, Credit Cards and Lines of Credit

If you and your spouse have a joint credit card, a shared line of credit or a loan you both signed for, separating raises a worry fast: who is responsible for paying it, and what happens if the other person stops? A separation agreement is the usual place to start answering that question.

This article explains how debts feed into the property calculation for married spouses, what to gather before you negotiate, and why it is worth checking your loan documents as well as your agreement. It is general information, not advice for your situation.

What a separation agreement can say about debt

Ontario.ca explains that separation agreements let spouses divide property as they choose. You and your spouse can decide who keeps which asset, rather than leaving it to a court. How debts should be written into the agreement depends on your situation, so it is worth confirming with a lawyer.

The same guidance says each spouse should have their own lawyer review the agreement, and that it is hard to change later. That matters for debt, because a poorly worded clause can leave you paying something you thought your ex had taken on.

• A list of every debt, with the lender, account type and balance.
• Who is responsible for paying each one going forward.
• Whether a joint account will be paid off, refinanced or closed.
• A deadline for any step, such as removing a name from a loan.
• What happens if the person responsible does not pay.

How debts fit into the property calculation

If you are married, debts are part of the equalization calculation. Ontario.ca describes it as total property owned at separation less debts and excluded property, then subtracting what was owned at marriage less debts (excluding the family home). A negative result counts as zero. The difference between the two spouses' totals is divided by two, and the spouse with the larger total pays that amount.

In plain terms, a debt you carry generally lowers your net total, which can reduce what you owe your spouse or increase what they owe you. That is why the debt list and its balances matter even when both of you plan to pay your own share.

If you were common-law, the picture is different. Common-law couples are not legally required to split property acquired during the relationship, and each generally keeps what they bought. A cohabitation or separation agreement can set out property rights. How debts are treated between unmarried partners depends on the facts and on whose name the debt is in, so it is worth confirming with a lawyer.

Debts, lenders and your agreement

Your lender is a separate party from your spouse. How a lender can pursue either of you depends on the documents you signed with that lender, so it is worth confirming with a lawyer before you rely on what you and your ex have agreed.

If your ex agrees to pay a joint debt, how that works alongside your loan documents and your credit record depends on the facts. A lawyer can confirm how it applies to you.

• Paying off and closing a joint account removes the shared risk.
• Asking the lender in writing to remove a name is a separate step from signing the agreement.
• Keep proof of every payment and every request you make to a lender.

Disclosure and getting the list right

Ontario.ca says an agreement should be made with full, honest financial disclosure, without pressure, and with an understanding of its terms, or a court can set it aside. A hidden or forgotten debt is a risk for both of you.

A financial statement is usually required if a family court case involves child support, spousal support, or property or debts. Form 13 is for support-only cases, and Form 13.1 is for cases involving property or debts. Even if you are not going to court, these forms are a useful checklist of what to gather.

• Recent statements for every credit card, line of credit, loan and mortgage.
• Which accounts are joint and which are in one name only.
• Any debts that are secured against property such as the home or a vehicle.
• Balances at the date you separated, and today's balances.
• Money owed to family or friends, and any tax debts.
• Whether any debt was used for one person's benefit, such as a business.

Changing things later, and what to do next

Only a court can change a domestic contract. To change one, the parties negotiate a new contract and file it with the court using form 26B. For married spouses, there are also deadlines to be aware of: to go to court over an equalization payment, the deadline is six years from separation or two years from the final divorce, whichever comes first. Waiting can limit your options.

Talking through the debt list with your spouse, or with a mediator, can help, because debt is mostly about numbers and practical steps.

• Gather statements and make a full debt list before you negotiate.
• Avoid running up new joint debt after separation.
• Ask a lawyer to review how each clause deals with joint accounts before you sign.
• After signing, follow through on closing, refinancing or removing names, and keep proof.

Frequently asked questions