Going through a divorce can be an emotionally and mentally stressful situation. It takes a toll on you, your ex-spouse, and your children. Divorce can also cause serious financial strain on couples. For millions of Canadians each year, this can lead to overwhelming debt and even bankruptcy. Divorce debt is a serious economic crisis but there are ways you can survive the downfall. Read on to find out more about what divorce debt and how you can navigate your finances as efficiently as possible if you find yourself in this situation.
What is Divorce Debt?
Divorce debt is a broad term that can refer to different types of debt: debt accrued by the couple during the marriage, and debt accrued post-separation and likely caused by the separation itself. Here is a closer look at understanding each type of debt and how it is handled by the Canadian court system.
Debt Accrued During the Marriage
If the couple has a joint debt, like a mortgage, both parties are responsible for the debt even after the separation. In most cases, the court will order the home to be sold to absolve the debt and leave each party with equal profits, if there are any. Or a judge can also allow for one party to buy out the other party at market price. Either way, the debt needs to be relieved or transferred to one single party before completing the divorce.
Any individual debts that the other party did not sign for, are not a joint responsibility. Credit card debt, credit lines, personal loans – all of these are the responsibility of the account holder only. These debts cannot be transferred to the other party. Should the responsible party default, the creditors cannot go after the other party for payment. These debts remain with the original account holder even after the divorce is finalized.
Debt Accrued Due to Separation
Many couples fine themselves in financial trouble during the separation process and there are a few reasons for this. One reason being that separation and divorce costs money. There are a slew of legal fees that both parties must assume in order to file and complete their divorce. The legal fees can be extremely high. Without a joint income to support it, each party is responsible for their legal fees. In some cases, a judge may order a spouse who earns significantly more to pay the legal fees of their ex, but this is up to the court system to decide.
There is also the issue of the house. One party may not be willing to part with their family home. Would prefer to buy out their spouse than sell. However, without a second income, the mortgage payments may be very difficult for one person to afford alone. This can lead people to fall into debt as mounting expenses surpass what they can afford to pay on their own.
Debts for Necessities
If one spouse has incurred personal debt on their individual account, but the debts were accrued as a result of purchasing necessities. Both parties may be responsible for paying the debt off. For example, if one partner does all of the grocery shopping for the family and goes into debt because of it, the other spouse is responsible for that debt, too. The debt incurred was only incurred in order to keep the family afloat. Debt from necessities can very well be distributed to both parties – which comes as a huge shock to many divorcing couples. The laws may vary slightly from province to province, so it’s important to check with your legal team.
In any case, divorce debt, whether accrued before or during separation, can soon become deadweight. It can prevent you from achieving financial freedom and saving up for your future. Divorce debt can be catastrophic for millions of Canadians each year, but the good news is, there are ways to get back on your feet.
How to Survive Divorce Debt
If you’ve fallen into unforeseen debt after your divorce, you may be wondering what you can do to get yourself back on your feet. Here are the top 10 things you can do to help survive divorce debt and get yourself back on track so you can eventually achieve financial freedom on your own!
1. Assess Your Debt and Budget
The first step to overcoming your debt crisis is to take inventory. Keep track of what you owe, how much interest you are paying, and what assets you own. Next, make a budget for repaying your debt that includes room for some flexibility. If your budget is too strict and you can’t stick to it, you’ll end up getting yourself into even more debt. The first step is to assess your situation and see if you can work a reasonable plan for getting it under control.
2. Consolidate Your Debt
If you owe many creditors – especially if you owe credit card companies – the next logical step is to take out a debt consolidation loan. Credit cards charge so much interest that you will be stuck in the terrible cycle of debt forever if you don’t consolidate your loans. It can also be really difficult to manage a dozen payments a month. Just keeping track of them all is stressful enough. Instead, the best thing you can do is reduce your overall interest rate by seeking out a debt consolidation loan so you can manage your debt repayment easier.
3. Move in with Family
If you have the option to move in with a friend or relative for a few months after your divorce, do it. This can give you some time to get your finances back in order by allowing you to pay off some debts without having to simultaneously pay a mortgage. This is a temporary solution that simply isn’t available to everyone. But if you’re fortunate enough to have the chance, take your loved ones up on their offer and move in with them until you can get your finances back in order.
4. Get a Second Job
If you have the time to work more, try to get yourself a second job to boost your income. Maybe this isn’t feasible forever, but at least for the first six to 12 months, a second part-time income can really help you pull yourself out divorce debt sooner. Remember, the longer it takes to pay your debt, the more it actually costs you. Instead, minimize your payment amount in the long run by grinding a little harder if you can. If you have children to care for, this may not be an option. If you are sharing custody, you can at least try to work more on the weeks your children are with your spouse until you make a little headway with your debts.
5. Verify if You Are Entitled to Spousal Support
In the event your ex-spouse makes significantly more than you and your quality of life would be significantly disturb by the loss of their income, you may be entitle to spousal support. Be sure to ask your legal team to look into this to see if you are eligible. Spousal support, even if only temporary, can help you get your finances in order much sooner after your divorce. You may also be entitled to your share of the value of the home, even if your spouse purchased it before you were married.
6. Try to Come to a Friendly Agreement with Your Spouse
No matter what has transpired between you and your spouse, keep in mind that the more difficulty you have in forging an agreement, the more costly the entire process will be. Lawyers do not come cheap and you will need them until your divorce is finalized. To minimize your debt, try to come to an amicable agreement sooner rather than later. This can be a tough process and surely comes with its own challenges. But ultimately, it will save you both lots of time and lots of money if you can agree amicably quickly.
7. Change Your Lifestyle
You may be use to a more lavish lifestyle but if that lifestyle was largely dependent on your ex’s income, you absolutely need to change your spending habits – and fast! If you continue to live your old life on your new income, you’ll find yourself unable to pay your bills pretty quickly. Instead, take the time to re-evaluate your new income and decide exactly how and where you can cut your usual spending to fit into your new budget.
8. Get Financial Advice from a Professional
If you are at the beginning stages of your divorce, this is the perfect time for you to get some financial advice from an experienced professional. This can help you minimize the financial damage to your life post-separation and help equip you with the tools and knowledge you need to manage your debt efficiently. The experts at BHM Financial can help guide you through your debt crisis and even help you plan a budget to keep you on track in the future.
9. Sell What You Don’t Need
If you have any assets in your name that you will no longer need, sell them. The money earned from assets that aren’t useful to you anyway, can help you pay down your debts quicker. Even if your assets aren’t value at very much, they may be worth more than you think – especially as they add up! Selling off unwanted assets can be just the boost you need to start paying down some of your post-divorce debts.
You may also want to consider selling your home if you were able to keep it after the divorce. If you are having trouble with debt, it may be worth it to downsize your space so you can pay off debts and get back on your feet soon. A smaller home will cost less and so will the expenses of upkeeping it.
10. Take Out a Personal Loan
If you’re behind on payments and not sure how you’ll make ends meet, you can always take out a persona loan. This can tough to do if you have bad credit or poor credit history. Most traditional banking institutions will not be too incline to loan you money with bad credit. Luckily, we offer bad credit personal loans. BHM Financial so you can get the funds you need in a single business day. We review and approve loans instantly and can get the funds in your hands same-day. If your expenses are piling up, it’s best to get a personal loan to improve your cash flow. To you get back into a new financial groove. This can actually prevent you from getting saddle with lots of credit card debt.
Should I Consider Bankruptcy to Resolve My Divorce Debt?
Divorce debt can be very overwhelming. In many cases, Canadians think they have no other options other than to file for bankruptcy. In some cases, this may be your only options. You must be aware of the consequences of bankruptcy before making your final decision. Filing for bankruptcy will dissolve most of your debts, but it will also dissolve your credit score. Essentially, you’ll be starting from scratch and for seven years, you will not be eligible for any loans or credit.
In addition, filing for bankruptcy won’t get rid of all of your debts. For example, tax debt owe to the Canadian Revenue Agency (CRA) will not be remove in the event you file for bankruptcy. You may still be on the hook for much more than you think. You will have difficulty securing safe housing or even a new job with a credit report that reflects your bankruptcy.
You may think you have no more options, but with BHM Financial, you have more options than you think. You can qualify for a loan with our simple approval process – even if you have bad credit. You can find out how to maximize your assets and leverage them to pay off your debts. Our financial experts can help you get out of debt without damaging your credit as much as a bankruptcy can.
What Happens to My Inheritance During a Divorce?
In Canada, an inheritance is pass down to an individual, not the couple, unless otherwise stat. If the person who inherits the money keeps that money in a separate account that belongs only to them, that inheritance remains theirs and the spouse cannot seek their share during a divorce. However, if the inherit funds are place into a joint account at any time, they become property of both parties, meaning they have to be divided equally during a divorce.
This little-known fact can cause loads of financial stress for many couples. This is why it is a good idea to seek financial counselling long before a marriage or divorce – or even before major purchases. Being inform on financial regulations can help you manage your debt load in the event of a divorce.
How Can I Avoid Divorce Debt?
If you are considering divorcing your spouse, you should first seek financial. Legal advice from an expert or a team of experts. This can help you minimize the financial burden of your divorce. It can also help you to manage your debt situation by giving you. The financial knowledge you need to control or manage your debt post-divorce.
Another way to avoid divorce debt is to enter into a binding contract with your spouse prior to marriage. This is known as a prenuptial agreement. It can save couples thousands upon thousands of dollars during a divorce. Any time you can be proactive in your financial decisions, you should do it. Being proactive helps to prevent financial mistakes and keeps your financial future in your hands instead of up to chance.
How Can BHM Financial Help with My Divorce Debt?
An expert financial consultant at BHM Financial can help you understand your debt. Our best options for getting out of it sooner. They can help you assess your net worth and your debts and suggest the right loan products for you. They can help you get out of debt and leverage your assets to help you achieve financial freedom sooner. If you are struggling with divorce debt, there is a way out.
At BHM Financial, you can count on our consultants to help you find the right debt solution for your needs. Plus, they will help you create a repayment plan that works for your lifestyle. We understand you still have a life to live and a family to raise in spite of your debt. Our goal is to help you live your life, get out of debt, and secure yourself a financially secure future. Looking for a way out of your divorce debt? Give us a call today to schedule a consultation. Find out how our financial experts can help you finally say goodbye to your divorce debt problems.