Who Pays the Debts in an Ontario Divorce?

When a couple separates, joint credit cards, a car loan or a line of credit can feel like the most urgent problem. Who owes what to the lender, and who owes what to each other, are two different questions.

This article explains how debt fits into the Ontario property rules between spouses. What a particular lender can collect from you depends on your contract with the lender, so check your own documents and get advice before you pay down, close or refinance anything.

How debt is treated between spouses

Ontario does not simply divide each debt in half. Instead, debts are part of the equalization calculation. Net family property is the value of property a spouse owns on the valuation date, minus debts and permitted deductions.

The spouse whose net family property is smaller is entitled to one-half of the difference between the two spouses' net family properties. So a debt lowers the spouse's total, and that changes the size of any equalization payment.

The valuation date and the zero floor

Debts are counted as they stand on the valuation date. The valuation date is the earliest of several dates, and one of them is the date the spouses separate with no reasonable prospect of resuming cohabitation. That is why the date you separated matters.

Net family property is never less than zero. A large debt can reduce your total, but it cannot create a negative figure to be carried into the calculation.

Joint debts, your own debts and the lender

A joint card or line of credit is a contract with the lender.

• Joint debts: list the balance on the valuation date and who actually uses the account.
• Debts in one name: still list them, because they may affect that spouse's net family property.
• Debts tied to excluded property: ask a lawyer how they are treated, since the person claiming an exclusion must prove it.
• New debts after separation: keep records showing when and why they were taken on.

Agreements and disclosure

A separation agreement is a domestic contract and is unenforceable unless it is in writing, signed by the parties and witnessed. It may cover property, support and parenting. If you agree how debts will be paid, write that down clearly.

A court may set aside a domestic contract, or part of it, if a party failed to disclose significant assets, debts or other liabilities, or did not understand its nature or consequences. Disclosing every debt protects both spouses. If you use family arbitration, an award is enforceable only if, among other conditions, each party received independent legal advice before making the arbitration agreement.

What to do next

• Pull statements for every card, loan, line of credit and mortgage, showing balances at or near the separation date.
• Note which debts are joint and which are in one name.
• Avoid running up new joint debt, and keep minimum payments current while you sort things out.
• Gather full information about your assets and debts, because missing disclosure can unsettle a deal.
• Get legal advice before signing, and bring your equalization time limits to that meeting.

A court may set aside a domestic contract, or a provision in it, if a party failed to disclose significant assets, debts or other liabilities. Under the Family Law Act, an equalization claim must generally be brought by the earliest of two years after a divorce or nullity judgment, six years after separation with no reasonable prospect of resuming cohabitation, or six months after the first spouse's death. The court may extend this time limit for an equalization claim if there are apparent grounds for relief, the delay was in good faith, and no one will suffer substantial prejudice.

Frequently asked questions