Women often more financially vulnerable in divorce
Although men are more likely to have higher incomes and higher debts, it is women who are often more disadvantaged by a separation, Hoyes notes. His firm’s surveyfound that as many as 30 per cent of women who had filed for insolvency were divorced, compared to 24 per cent among men.
Also, 45 per cent of them had dependents, compared to 34 per cent of men, and 27 per cent of females who went bankrupt were single parents, compared to only 8 per cent of males.
Women often have lower incomes and are awarded custody of the children, which can make expenses hard to manage, Hoyes said.
Being the higher earner in a divorced couple with debts is no walk in the park, either. Men who used to be the family’s breadwinners can get saddled with steep child support payments that can leave them with little to pay their own bills, especially if they happen to see their income dip after a separation, Gowling said.
But in Hoyes’ experience, it’s female debtors who are most vulnerable in a divorce.
Stuck together in debt
The irony of debt is that it can both break up your relationship and can keep your ex-spouse in your life after divorce, if the two of your have shared liabilities.
Unlike assets, which are usually divided equally in a separation, debts that carry both your and your spouse’s name cannot be split 50-50.
“The bank is not party to your divorce,” said Hoyes. From its point of view, you are both responsible for 100 per cent of your jointly held debts.
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Divorce agreements laying out whose responsibility it is to repay those debts will not prevent the bank from coming after both of you if your ex fails to uphold his or her part of the deal, Gowling points out.
In addition, “any missed payments or late payments will continue to affect your credit score no matter who was supposed to make them,” Rebecca Martyn, a Windsor-based licensed insolvency trustee at Hoyes Michalos, wrote in a post on the firm’s website.
There are other ways in which debt can make a divorce messy.
For example, one scenario Gowling has seen a few times is one partner “racking up a [shared] line of credit out of spite” right before the separation. Often the other spouse isn’t aware that this is happening, he added.
Your ex filing for bankruptcy can also leave you holding the short end of the stick. If he or she files for bankruptcy right before the divorce, the family’s house becomes part of the assets that will help pay off your spouse’s creditors. And while you are among those creditors, the house is no longer available for distribution in the divorce, noted Gowling.
A much better way to handle out-of-control shared debt would be for divorced couples to file bankruptcy together, which happens more often than you’d think, said Gowling.
Even better, you and your spouse could talk to your bank before signing any separation papers about setting up two distinct loans in each of your names to pay off your shared liabilities, wrote Martyn.
“Your bank probably won’t just remove your name from the account if there is an existing balance. They will want to be sure they can collect, despite your divorce. Once the old accounts have been paid off and balances transferred, close the pre-divorce credit accounts if that’s possible. At a minimum, get in writing from the bank any adjustment to the agreement as to who is responsible for payments,” she noted.
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