Separated couple sitting at table discussing division of finances

Declaring Bankruptcy When Filing for Divorce in Ontario

Divorce comes with financial challenges. Legal fees, housing, and alimony can quickly become a mountain of debt. One in five personal bankruptcies involves someone experiencing a marital breakup.

However, is bankruptcy the best option if you’re facing a divorce? What happens if you need to declare bankruptcy during your divorce? Should you file for divorce first?

Here’s what you need to know about divorce and bankruptcy in Ottawa and across Ontario.

Joint Debt in Divorce

Joint debts aren’t split evenly in a divorce. You and your ex are responsible for repaying 100 percent of the debts you both owe. For example, if your ex-spouse agrees to pay off a joint loan but fails to make the payments, the bank will demand you pay off the rest of the remaining debt. It doesn’t matter what your divorce agreement stipulates.

When it comes to bankruptcy, if one partner declares bankruptcy, the other partner becomes responsible for 100 percent of the outstanding joint debt. Filing for bankruptcy or a consumer proposal doesn’t make the debt “go away”; it only shifts the burden to the other partner.


Joint Assets in Divorce

How your assets are affected depends on what came first, the divorce or the bankruptcy. If you finalize your divorce before filing for bankruptcy, and some assets were transferred to your spouse as part of the divorce proceedings, those assets won’t be affected.

Alternatively, if you file for bankruptcy before your divorce, all the assets in your name and half of the value of your joint assets are part of your bankruptcy estate, and you’ll have to surrender them to your licensed insolvency trustee.


Alimony and Child Support

Differing income between partners means one must pay alimony and child support. The courts can garnish up to half your wages if you fail to make these payments, and you’re still on the hook even if you file for bankruptcy. However, you can deduct these payments from your income when calculating your bankruptcy costs.

If you’re owed payments, you can file a claim to receive dividends from the bankruptcy estate, just like any other creditor. Creditors owed money for more than a year get paid first.


Additional Points to Consider

If you’re facing a divorce, consider these financial moves.

  • Open a bank account in your name only and stop using joint accounts.
  • Stop using joint credit cards and apply for a card only in your name.
  • Ensure all joint financial arrangements have limited ability to take on additional debt and ensure any changes need your approval.
  • You and your partner should close all joint accounts and destroy joint credit cards.

Finally, speak with a licensed insolvency trustee about managing your debt effectively and navigating the bankruptcy process should it be the right choice to proceed with.


Are You Going Through a Divorce? Get Bankruptcy Advice in Ottawa

The licensed insolvency trustees at D. & A. MacLeod Company Ltd. can help you if you’re struggling financially with divorce fees, co-signed loans, joint debts, or considering bankruptcy. Contact us today in Ottawa or any of our seven locations across Eastern Ontario to schedule an appointment in person or virtually.