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Who pays for debt incurred post-separation?

Division of property in Ontario

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What happens if your ex goes into debt after your separate?

The answer may seem simple. The person who incurred the debt should pay for it. However, in certain jurisdictions it is not so straight forward.

In an article in Financial Post Toronto Lawyer Adam N. Black explains how a couple in Alberta got into a lengthy court battle after the husband racked up $115,000 worth of debt during their 6-year separation before the divorce was finalized.

In most provinces assets and liabilities are divided as of the separation date. However, under Alberta’s Matrimonial Property Act they are divided as of the date of the trial. The husband relied on Alberta’s laws to support his argument that his ex should pay half of the $115,000 worth of line of credit and credit card debt he had racked up over their lengthy separation. At trial the judged agreed with him and ordered the wife to pay her ex over $400,000, an amount that included half of his debt incurred post separation.

Understandably the wife appealed the decision. In the appeal the wife argued that because her ex-husband could not provide any reason for the debt (as he could have easily met his needs based on his income) he should be solely responsible for it. The appellate court agreed.

The Court of Appeal noted that onus is on the person who incurred the debt to demonstrate that it was used for the benefit of the family unit and not solely for the debtor’s own purposes. In this situation this requirement was not met, and the Court of Appeal found the husband solely responsible for the debt he incurred post-separation.

Black says this case serves as a reminder as to what can happen if a couple separates but stays connected financially for a long period of time. Even the Alberta Court of Appeal acknowledged this when they opened their decision stating that “this appeal demonstrates the difficulties that can arise when dividing matrimonial property after a lengthy period of separation during which the parties remain financially interconnected.”

The longer a couple is separated but stays connected through finances the more complex the situation becomes. Black says this is true in all jurisdictions in Canada, not just Alberta where property and liabilities are separated at the time of the trial. “Courts across the country are routinely asked to determine how to account for post-separation transactions,” he writes.

Given the often-lengthy divorce process Black says it is important to keep track of all post-separation transactions, specifically it’s purpose and who benefited from it. With this attention to detail the costs of a trial and possibly and appeal may be avoided.

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