How Is Family Debt Divided After Separation in BC?

Separation raises worries about money you owe as well as money you own. You may have a credit card in your name that your spouse also used, or a line of credit you took out for the household, and you are wondering who has to pay.

This article explains how the Family Law Act in British Columbia treats family debt, why a debt in one name can still be shared, and why the lender's rights are a separate question. It is general information only.

This article covers the law of British Columbia.

What counts as family debt

Family debt is financial obligations incurred from the start of the relationship to separation. After separation, a debt is family debt only if it was incurred for the purpose of maintaining family property.

The relationship begins on the earlier of moving in together in a marriage-like relationship or marriage. A person is a spouse if married, or if they have lived in a marriage-like relationship for a continuous period of at least 2 years. Having a child together does not make a couple spouses for property division without the 2-year period.

Equal responsibility, even for debts in one name

Unless an agreement or order says otherwise, spouses are equally entitled to family property and equally responsible for family debt. Because of that, a debt in one name can still be family debt and shared.

The process is usually to identify what each spouse owns, identify the family debt, value the property, then divide equally unless an agreement or a significant-unfairness order applies. Debts you took on before the relationship, or after separation for your own purposes, generally fall outside the definition of family debt.

The lender is not bound by your division

Part 5 of the Family Law Act does not affect the rights of a spouse's creditors, guarantors or assignees regarding family debt. A division between spouses does not bind a lender, and a debt in one spouse's name remains owed to the creditor by that spouse.

This is why a joint debt needs careful handling. If your spouse is ordered or agrees to pay a joint debt but does not, the lender can still look to you. To give effect to a division, the court can order indemnities, compensation or security. It can also order compensation, a sale, or debt indemnities as part of a division.

How a lender treats a change in who carries a loan or mortgage varies, so ask your lender what it requires.

When equal sharing may not be fair

The court may order an unequal division of family property or debt if an equal division would be significantly unfair, though the government says courts will not order that in most cases. Factors the court looks at include:

• Whether the debt was incurred in the normal course of the relationship.
• Where debt exceeds property value, each spouse's ability to pay a share.
• Whether a spouse substantially reduced property value or disposed of or converted property other than in good faith.
• The duration of the relationship and the terms of any agreement.

Spouses can also agree in writing to divide debt equally or unequally. A court cannot override a written, witnessed agreement unless it is set aside on grounds such as non-disclosure or one spouse taking improper advantage.

What to do next

• List every debt: credit cards, loans, lines of credit and any amounts owed to family members, noting whose name each is in and when and why it was taken on.
• Request current statements and, where possible, credit reports so you know the balances at separation.
• Keep records showing whether each debt was for household purposes.
• Consider asking lenders about closing or freezing joint accounts, and be careful about new borrowing.
• Be ready to share financial information. In Supreme Court, a financial statement in Form F8 is required when claiming property or debt division under Parts 5 or 6.
• Mind the time limit: a proceeding to divide property or family debt generally must be started no later than 2 years after a divorce judgment for married spouses, or after separation for spouses in a marriage-like relationship.

Frequently asked questions