Family Debt in BC: Who Pays the Credit Cards, Loans and Mortgage After Separation?

Separation brings questions about the house and savings, but debt can cause just as much worry: the credit card in your name that your spouse ran up, the line of credit secured on the home, or a car loan you co-signed.

This article explains how BC's Family Law Act treats family debt between spouses, why that does not change what you owe your lenders, and the practical steps that help protect you while things are being sorted out.

The starting point: family debt is shared

Part 5 of the Family Law Act deals with property and debt. Section 81 sets the starting point: unless an agreement or order says otherwise, spouses are both responsible for family debt, regardless of who used the money or who contributed more. On separation, each spouse is equally responsible for family debt.

This applies to married spouses and to unmarried couples who lived together in a marriage-like relationship for at least two years. Couples together for a shorter time are not covered by these property and debt rules, even if they have a child together.

The rules work alongside the division of family property, which our article on family property division in BC covers in more detail. In practice, debt is usually netted against property when the overall division is worked out.

What counts as family debt

Section 86 describes family debt as including all financial obligations incurred by a spouse:

• during the relationship, from when it began until the date of separation; and
• after separation, if the debt was incurred to maintain family property.

That means a credit card balance run up during the relationship can be family debt even if the card is in only one spouse's name. A loan taken out after separation for a holiday or a new car will usually not be family debt, but a loan taken out after separation to pay for an urgent repair to the family home may be, because it was incurred to maintain family property.

Because the separation date marks the cut-off for most debt, it matters. Spouses can separate while still living under the same roof, and the date is sometimes disputed. Debts that existed before the relationship began are generally treated differently from debt incurred during it, and tracing when a balance was built up can affect the outcome.

How family debt is valued

Under section 87, unless an agreement or order provides otherwise, family debt is valued as of the date the spouses make an agreement dividing property and debt, or the date of the court hearing. It is not frozen at the separation date.

So if one spouse keeps paying down a joint line of credit after separation, or the interest keeps growing on a credit card, the amount to be shared changes over time. Payments made by one spouse after separation are often raised when the final numbers are worked out, which is a good reason to keep records of every payment you make.

When debt may be divided unequally

Equal sharing is the default, not an absolute rule. Section 95 allows the Supreme Court to divide family debt unequally if an equal division would be significantly unfair. The factors the court may consider include:

• whether the family debt was incurred in the normal course of the relationship;
• where family debt exceeds the value of family property, each spouse's ability to pay a share;
• whether a spouse, after separation, caused a significant increase in family debt beyond market trends;
• the duration of the relationship and the terms of any agreement between the spouses.

Gambling losses or large debts hidden from the other spouse are the kinds of situations where the first factor can come into play. If you suspect debts have been concealed, full financial disclosure is the starting point; see our article on financial disclosure after separation.

Your lender is not bound by your separation

This is the point that surprises many people. Section 82 says nothing in Part 5 affects the rights and remedies of a spouse's creditors, guarantors or assignees in relation to family debt.

In practical terms, the Family Law Act decides how debt is shared between the two of you. It does not change your contract with the bank. If you are a joint borrower on a mortgage, a joint cardholder or a co-signer on a loan, the lender can still look to you for the whole amount, even if a separation agreement says your former spouse will pay it. If your spouse stops paying, your credit can suffer and you may have to pay first and seek repayment from your spouse afterwards.

Practical steps to protect yourself

While property and debt are being divided, consider these steps:

• Get your credit report. It shows the accounts in your name, including any you did not know about.
• Review joint accounts and cards. Ask lenders about removing a spouse as an authorized user or freezing further borrowing on a joint line of credit. Some changes need both borrowers' consent.
• Keep paying the minimums. Missed payments damage credit for both of you and can add interest and fees.
• Keep records. Track every payment you make on shared debt after separation.
• Watch the deadline. For married spouses, a claim to divide property or family debt generally must be started within two years after the divorce order; for unmarried spouses, within two years after separation.

If money has already been taken from a joint account, our article on a spouse draining a joint account explains the options.

Writing it into an agreement

A separation agreement can say who keeps which debt, who pays which accounts and by when, and what happens if a spouse does not pay. Good drafting looks beyond the split itself: refinancing a mortgage into one name, closing joint cards, and indemnities if one spouse defaults. Because a lender is not bound by your agreement, these practical steps are often what actually protects you.

Sorting out debt after separation? Get advice before you sign

Our family lawyers can review what is family debt in your situation, explain how it is likely to be shared, and help negotiate and draft an agreement that deals with lenders as well as with your former spouse.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.