Mediating issues related to debts & loans
Let’s face ~ at the end of a relationship, whether married or common-law, many couples find themselves in debt - with loans from institutions like banks and credit unions, but also from family and friends. “What happens to these loans on separation?” is a question I am asked a lot, both as a family mediator and family law lawyer. The answer is (yes, you guessed it!!) - it depends.
On what? On a whole host of factors, including whether you were married or not. If you were married, the debts and loans are likely to be dealt with by way of “equalization” - a formula applied in Ontario to everything each of the spouses owns and owes as of the separation date - not something I want to get into here but something I have addressed before on my podcast, SANE SPLIT. The basic premise of the formula is that debts reduce net worth (in family law, called “net family property”) - meaning that the more debts you have, the less your net worth and you are likely to owe less by property division to the other side. Likely but not definitely - again, that depends on what the other side has and what other assets you have, and how you got them. This equalization formula does not apply to common-law spouses but they too have to address the issue of their debts and loans on separation.
Remember that there are really two issues to consider here:
how will any debts and loans be considered as between the spouses - so for example, if a line of credit is in one spouse’s name alone but the line was used for the benefit of the family or perhaps even to inject money into the other’s business; and
how will any debts and loans be handled vis a vis the lender. What I mean here is that banks, for example, do not care that a couple is separated. If both of their names are on a line of credit, the bank views them both as responsible for the debt. If there is a default, the bank will chase both. It does not matter, for example, that the line was used to buy a car for one of the spouses and he is keeping the car. Food for thought.
Here is the good news: like most other issues faced by a separated couple, debts and loans CAN be addressed in family mediation. The process allows the mediating couple to go through the debts and loans in a systematic and organized way so that a workable plan can be put in place to achieve a fair end result for each of the parties. Add debts and loans to your list of issues for mediation and make that appointment today!
©AJJakubowska
