Leanne321

Breaking up is hard to do

By | Jun 11, 2012
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Guest blogger Leanne Salyzyn is an insolvency counselor, licensed restructuring professional and trustee in bankruptcy. Post a comment or contact her on Twitter with your personal-finance questions.

We’ve all heard the joke “love is grand but divorce costs a hundred grand” but there is nothing funny about the financial cost of a relationship failure.

Statistics Canada reported in July 2011 that 43 per cent of Canadian marriages end in divorce before the couple reaches their 50th wedding anniversary. This number does not take into account the growing number of individuals who co-habitat instead of walking down the aisle. The legal costs associated with a split can range from hundreds of dollars in an uncontested matter to well above what the joker quoted. But that’s not the half of it.

Couples incur matrimonial debt. They buy a home and begin to nest. They fill the home with stuff. They buy a family car or two. They take vacations and generally enjoy themselves while paying day to day bills. They build a family. They build a life with credit. Banks love couples. In fact, they prefer to have two parties sign as borrowers to protect their interests. But what happens when the relationship fails? Who is responsible to pay?

Creditors really don’t care who pays their debt. They just want to be paid. If it’s a joint debt, both parties are responsible to pay the full amount (not 50/50 as most incorrectly assume). If a split is amicable, many couples divide the debts among themselves and agree to assume responsibility to pay their portion of the debt and rewrite it in one name, releasing the other party from future responsibility. However, this is not always possible as many do not qualify for refinancing on their own.

With Canadians living well beyond their financial means even when they were happily living together, often consumers cannot afford to maintain a basic lifestyle on now one income and pay their fair share of the debts from the failed relationship. Then there are responsibilities such as monthly child support, spousal support or daycare costs. Don’t forget to also add the cost of lawyers to handle the legal proceedings et voila, a recipe for financial disaster is sometimes created. While you may not be able to avoid a split from occurring, here are a few things to consider.

  • Live within your financial means while together; limit credit consumption
  • Upon separation, if possible, agree on how relationship debts will be divided
  • Open separate bank accounts
  • Get legal advice regarding matrimonial assets and responsibilities with respect to child support/spousal support
  • Consider liquidating joint assets to pay joint debts
  • Notify and negotiate with creditors

While a relationship split may cause a broken heart, it’s important to make sure it doesn’t also cause a broken pocketbook.

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