Marriage and Separation: How To Separate Marital Property, Debt and Divorce

By Leah Coss

Whether you are married or common law, separating from your significant other can be one of the hardest things you will ever go through in your life. Even putting aside the wild emotions that can affect you during this time, the actual logistics of the parting can be the most trying of it all.

Why?

Because this is the part that tends to drag out, re-inflicting your hurt emotions, testing your patience and ability to work together with someone you have no interest in being around any more, and of course, the financial strains that can come from splitting up.

Often in a relationship that has gone bad, one or both of the people end up being worse off financially than when they started, and really if you think about it, this makes no sense. So long as you are making decent decisions in life with your money you should always be moving ahead, not backwards.

So how does this happen?

Usually it is either one person giving too much trust to the other after the break up, or both parties being so upset that important details fall through the cracks until it’s too late or that they are so stubborn in what they want or don’t want that nothing gets done until both parties credit score is shattered.

How can you protect yourself?

One of the absolute FIRST things that you should do if in this situation is separate all debt accounts. Split up credit cards that are joint, lines of credit, leases, and anything else that needs a monthly payment. Why? Because this is how your credit gets damaged for many years to come and will make it difficult to purchase a home on your own.

There are three ways this usually happens.

1. Through all the arguing and disagreements, bills don’t get paid. Perhaps you are arguing over a car lease and neither of you want to take on the payments or you think that he should pay the lines of credit down or she spent more on the credit card this month so she should make the payment, etc… and soon you are 3 months over due on your payments and your credit scores are destroyed.

2. An Abuse of Trust happens between the parted couple. Typically it is the women who do this (so ladies stop it) but, for example, they will allow their spouse to take the car and car lease. Maybe the husband can’t qualify for the lease on his own so she remains on the title. Perhaps the car gets into an accident and he stops making payments. Now her credit is suffering and she can do nothing about it.

3. Other possibilities is that one person simply forgets that they are on a joint credit card account and the other person charges up the card to the limit which also effects your credit AND now they are just as liable for paying it down as the one who charged it up.
When separating the debts, be sure to get a formal agreement in place to put an end to any future potential credit risks.

Obviously the house, or Matrimonial Home, is the big ticket item that takes the longest to sort out. Again, no matter how much you dislike each other or how stubborn you feel you need to be, DO NOT LET THESE PAYMENTS GO UNPAID! It is just not worth it. If you have to, be the bigger person, pay the mortgage payments on time and just document it so you can bring it up later during the settlement.

There are really just 4 ways that you can settle up the house issue.

1. Sell the home and divide it 50/50
2. One partner buys the other one out at an agreed upon price

These next 2 I REALLY do not recommend

3. Keeping the place and renting it out because neither of you want to lose the great location down town or the market is in a down turn and you don’t want to lose money on it, etc
4. One buys the other out but lets the other person rent the suite off of them or has some sort of lease agreement.

Even in the best of break ups, keeping in touch or having that one money issue between you two never works out. Just ask those with children who have to worry about child support issues that keep arising. The less that you can have keeping you together the sooner you can both move on and start your own, individual lives again.

At what point can you buy a new place of your own?

This is important.
Before a bank will look at you and loan you any money for a mortgage or otherwise, you must FIRST have a separation or divorce agreement IN PLACE;  Not drafted up or discussed. It must be in writing with all the appropriate signatures and be signed in the presence of a notary or lawyer (not just signed between one another).

So if you are dragging out a formal separation or don’t want to go all the way through with the divorce for some ego or guilty conscience reasons, then you cannot buy a new home of your own without taking the risk that your “spouse” can claim rights to it and the banks don’t like to take this risk with their money.

The divorce or separation agreement must also spell out the following issues:

• If there is any Spousal Support being paid/received
• Child Support
• Any other ongoing Financial Obligations (house, car lease, etc)

The banks will require a copy of this divorce agreement to confirm the situation. And as mentioned before, make sure your debt accounts are separated as this will show up on your credit bureau.

There you have it. Hopefully this bit of reason and logic will help you through an emotional time.

Good luck in your future and if you have any financing questions about this topic or anything else, I am available 7 days a week by phone, email and online. 604.313.9996, Coss.L@mortgagecentre.com and MortgagesInVancouver.com Read more