Many people find it challenging enough to handle the debts they know about. Being surprised with the news that you, even possibly, owe money you didn’t expect would throw anyone for a loop. AFCC Christine Urbanowski walks reader Pheobe through what to do to minimize the impacts of a tricky debt situation and the difference between an authorized user and a joint account holder.
The question
Hi Experts,
Not sure just how much trouble I’m in. I got divorced a year ago. While we were together my ex kept up with his finances. That’s why I didn’t blink an eye when he suggested getting a credit card together. I thought I had been signed on as an authorized user. I’m in the process of buying a car so my credit was pulled. I was surprised to find out that I’m actually a joint borrower and he’s now racked up $15,000 in debt. Am I liable for his debt? What’s the best way to clear this up? I don’t want to owe money that I didn’t have a hand in spending.
Please help!
Pheobe, H., London. ON
The answer
Going through a divorce is tough. Then, just as you are getting back on your feet, you find out that you owe money for things you didn’t even buy. That must feel overwhelming! You definitely are right to be concerned. As a Canadian, it’s important to understand your rights and responsibilities when it comes to joint debt. This guide will help you understand what you owe and outline steps you can take to fix the problem while minimizing the impact on your financial well-being.
Authorized user vs joint borrower
In Canada, there is a big difference between an authorized user and a joint borrower on a credit card account. If you are just an authorized user of a credit card, you are not responsible for paying back any money. An authorized user can use the credit card, but the primary account holder is the only one responsible for paying back the balance owed.
However, if you’re a joint borrower, you are responsible for paying back any debt. The credit card company sees the primary account holder and the joint borrower as equally responsible, no matter who bought what.
STEP 1: Review separation agreement
Look over your separation agreement. See what it says about how to split up debts. Check if it says that debts incurred after a certain date are only the responsibility of the person who accumulated them. In Canada, debts created during the marriage are usually split equally between the partners unless that would cause serious problems for one partner. Debts created after separation may also be split between partners if, for example, they were to maintain the family home.
Remember though, the credit card company doesn’t care what your separation agreement says. It only cares whose names are on the credit cards. If the agreement says that your ex has to pay for the credit card debt, you may be able to make this happen in court. That is a different issue from dealing with the credit card company itself.
STEP 2: Contact your ex-spouse
Money can be tight after a divorce, especially when you go from two people paying for one home to each person paying for their own place. Even if you’re really angry with your ex right now, try to understand that things might be tough for him too. If you feel okay doing so, talk to your ex about the money owed on the credit card. Hopefully, he’ll agree to take responsibility and pay it off quickly, so you can start fixing your credit. Remind him of any legal obligations he has in your separation agreement, and write down any new promises he makes to you. It’s important to remember that even if he agrees to pay, the credit card company can still hold you responsible. Keep open communication with him until the debt is completely paid off.
If your ex can’t pay off the debt quickly, try to figure out his overall money situation. If the debt goes to a collection agency, they’ll start calling you too. So, try to make sure he’s at least making the minimum payments each month (which usually isn’t much more than the interest on the balance).
STEP 3: Contact the lender
Call the credit card company and tell them what’s going on. The first thing you should do is ask them to freeze or close the account. This will stop your ex from using the card and adding more debt. Also, ask them for a list of all the charges and payments made on the card. You can even ask them about repayment options. Remember, the credit card company doesn’t care about your separation agreement or who was supposed to pay the debt. As far as they’re concerned, you owe money to them just as much as he does. This also means that if your ex goes bankrupt, the credit card company will expect you to pay the whole debt.
STEP 4: Get professional help
If you can’t come to an agreement with your ex on getting the debt repaid quickly, you should talk to a family law lawyer to find out if legal action is your best bet. A lawyer can help you understand your legal rights and options. You may need to take your ex to court to have the agreement enforced or to have the debt reallocated.
A Financial Counsellor or a Credit Counsellor could help you with debt management and minimizing the impact on your credit score. If a debt repayment plan is not an option, you may need to involve a licensed insolvency trustee to discuss other options such as a consumer proposal.
STEP 5: Check your credit report
This step resonates hard with me! When I was studying to become a Financial Counsellor, I applied for a business account at a local credit union and was turned down. I was stunned! My gut knew something was wrong. I got a free copy of my TransUnion and Equifax credit reports. Sure enough, one of them was still in my old married name from over 10 years prior. So definitely check your credit reports for errors and make sure that you don’t have any other joint accounts with your ex.
STEP 6: Protect your financial future
It’s essential to take steps to protect yourself from money problems in the future. If you still have any joint bank accounts or bills with your ex, work to close or separate them quickly. Contact your lenders to make sure that your ex can’t use any of your accounts anymore.
Conclusion
Splitting up debt during and after a divorce can be hard. Even though your separation agreement says how debts should be divided, it’s important to remember that creditors only care about whose name is attached to the debt. Talking openly with your ex and keeping in touch with your lender are important steps in fixing the problem. Getting help from a lawyer or financial counsellor can make the difficult parts of paying off shared debt easier to understand. Also, checking your credit reports and closing any joint accounts will ensure you won’t owe money as you move forward.
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