Will My Separation Agreement Protect Me If My Ex Goes Bankrupt?

Will My Separation Agreement Protect Me If My Ex Goes Bankrupt

When a relationship ends it is not uncommon to have a formal separation agreement drawn up by a lawyer to spell out the responsibilities of each party.  Typically, the assets (house, vehicles, pensions, furniture) and liabilities/debts (mortgage, loans, credit cards) are divided amongst the separating parties and custodial arrangements are made for the care of the children.

Even though both parties may have agreed to assume responsibility for certain debts, it does not absolve the parties should one of them default on credit that was granted jointly such as joint credit cards or lines of credit.   Should one of the parties decide to not pay the debt, file a consumer proposal or file for bankruptcy, the credit grantor can pursue the other party for the full amount of the debt.  From the creditor’s perspective, it doesn’t matter what the separation agreement says or what other arrangements were made between the separated spouses.

When going through a separation or divorce it is important to deal directly with creditors and to close out any joint debt, especially credit cards that were obtained as a couple, to prevent the accumulation of further debt for which both parties can be held responsible.

With respect to assets, when someone files for bankruptcy, all of their assets are transferred to the Trustee.  For example, if a house is jointly owned by both spouses and one goes bankrupt, the bankrupt spouse’s interest in the house transfers to the Trustee.  If there is a written separation agreement in place that says the non-bankrupt spouse is supposed to have the bankrupt spouse’s interest this may or may not be binding on the Trustee and many complications can arise.  The non-bankrupt spouse will have to deal with the Bankrupt spouse’s Trustee, at the minimum, to get the transfer of the bankrupt’s spouse’s interest.

Bankruptcy laws and family laws do not necessarily deal with assets and liabilities in the same way and there can be conflicts and unintended consequences when the two interact.

Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses.  We offer free consultations to review your personal financial situation and practical debt resolution options.  Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, FrederictonCharlottetown or Dartmouth - it's your choice.