When divorce looms: how to go about dividing debt

December 22, 2014

Separating is the first tough step. Then comes the agonizing money matters. When divorce looms, how should you go about dividing the debt? Here is some advice.
Sharing the responsibilities

Before you go about this difficult task, you need to be familiar with the law in your province or territory of residence. If things are contentious, which they are very likely to be when it comes to dividing debt during divorce, hiring a lawyer may be the best solution. Nevertheless, here are some general guidelines for divvying up the responsibility for your common debts. Bear in mind that these guidelines apply only to legally married couples and not to common-law spouses.

Jointly-held assets

In general, assets that were jointly acquired during the marriage (such as real estate, furniture and vehicles) are shared out equally according to their net value. If you have a prenuptial agreement that specifies otherwise, then it sets the course.

  • Assets acquired individually before or during the marriage are treated differently, depending on your pre-nup and your provincial or territorial laws. The same goes for debts incurred jointly or separately during the marriage.

Valuation of family assets and debts

Before you get to the dividing of debt in your divorce, you’ll have to evaluate your property in terms of the current market. This can be done by a real estate agent or in accordance with your municipal evaluation.

  • The debt incurred by each of you at the time of purchase, as well as maintenance and renovation costs, will then be calculated and subtracted from the final amount.
  • The sharing of debt repayment will also take into account the respective financial situations of each individual as well as any legal agreement they signed upon getting married.

Future value

If possible, consider the future value of an asset when dividing your debts during the divorce.

  • If your spouse wants to buy your share of an apartment building, for example, it’s reasonable to assess its future worth. If you give up a pension or your part in an RRSP, do so knowingly, based on potential future increases in value.

Required documents

To make sure that everything goes as smoothly as possible, make sure you have all the necessary papers in hand:

  • Your tax returns for the past five years.
  • Balance statements for each of your retirement savings funds.
  • Current-year pay stubs.
  • A document that outlines all the employee benefits enjoyed by both spouses.
  • Insurance policies.
  • Balance statements for both spouses’ bank accounts.
  • Balance statements for all investments and shares.
  • The deed to your home or your lease agreement.
  • Mortgage and loan records and statements.
  • All credit card bills.
  • Your wills.
  • Receipts for major purchases.
  • Your marriage contract.
  • Any other relevant documents recommended by your financial advisor, lawyer or mediator.
When divorce looms: how to go about dividing debt
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