When a relationship breaks down, it is not uncommon for the parties to be concerned about how their debts and liabilities will be accounted for as part of their separation. The couple may have taken on joint debts during the relationship such as lines of credit and mortgages, or one party may have brought debts into the relationship which they have paid off through the help of their partner. Whatever the situation, a Court may treat such scenarios differently, depending on whether the couple was married or in a common-law relationship.
For Married Couples
In Ontario, married couples are subject to the equalization regime, meaning that whoever’s net worth has increased more from the date of marriage to the date of separation, will share half of that increase with their spouse. The calculation of each spouse’s Net Family Property (a measurement in the equalization calculation), includes subtracting any debts the person held at the date of marriage, from their assets at that time. The debts held at the date of separation are also subtracted from a person’s assets at the time of separation. If any debts or liabilities were held jointly between the spouses, each spouse will subtract the interest they have in that debt from their assets at the relevant date. But what happens to a debt that existed at the time of marriage, but is paid off by the date of separation?
The equalization calculation functions in such a way that that the spouse whose debt is listed at the date of marriage, but is paid off by the date of separation, may see a resulting increase in their Net Family Property. This is because their starting net worth at the date of marriage would be lower given the debt that existed at the time. It should be noted that this can result in that spouse owing the other spouse a larger equalization payment, since they might have a larger growth in their net worth than their partner. This might appear like the non-indebted spouse is benefitting from their partner having paid off a debt they brought into the marriage, even where they might not have contributed to discharging it. The equalization regime assumes that where a debt is paid off during the course of a marriage, there must have been some direct or indirect contribution that the non-indebted spouse made to the debt repayment. This might not be money contributions, but it could be support that one spouse has given another, which made it easier for them to repay that debt. This is a feature of the standardized equalization system as it exists in Ontario- it does not require proof that the non-indebted spouse actually contributed to discharging a debt.
It is thus not uncommon for married spouses to seek to claim various debts and liabilities that still existed at the date of separation- especially where they have significant assets that they want to offset.
For Common Law Couples
Because common law couples are not automatically subject to the equalization regime in Ontario, their situation regarding the division of debts and liabilities is more uncertain.
Solely held debts are presumptively the responsibility of the spouse who holds the debt. Where the spouses hold debts or liabilities jointly, carriage of the debts after the relationship has ended is often dealt with through negotiations. For example, a spouse who owes the other spouse a high amount of spousal support, might agree to take on responsibility for more jointly-held debts in return for paying a lower amount of support.
In the case of a solely held debt that has been paid off during the relationship, a contributing spouse could argue that the parties were engaged in a Joint Family Venture. They might argue that they made direct payments toward it, or that the labour they did at the home allowed their spouse to work more, or save enough money to repay the debt. These are just some of the arguments that could be advanced to compensate a spouse for how they contributed to the eventual discharge of a debt- which they might otherwise not benefit from.
It should also be noted that married couples can make the same arguments for Joint Family Venture, though many will simply rely on the standard equalization regime instead. Furthermore, a claimant would have to meet the test laid out in Kerr v. Baranow 2011 SCC 10 in order to establish that a Joint Family Venture exists, as there is no presumption that same is present in every relationship. This includes an analysis of several factors including:
- Whether there was mutual effort or collaboration to reach common goals;
- The degree of economic integration or interdependence between the parties during the relationship;
- Whether the parties had an actual intent to share the wealth created throughout the relationship; and,
- Whether there was a priority given to the family when making decisions.
Regardless of the situation, such claims and negotiations surrounding the division of debts and liabilities when a relationship ends, can be very complex. As such, it is important that you seek out the advice of a licensed Family Law Practitioner to understand the full breadth of your options.