Divorce and Refinance
Many divorcing couples have joint debts. Law in most Canadian provinces states that if both spouses signed for the debt to begin with, both are still responsible legally for the full amount, even after divorce. The creditor can sue both spouses for the debt, even if one spouse agrees to pay the entire debt in a divorce decree. Consequently, if that spouse were to miss payments, it can affect the other spouse’s credit.
Paying off and Refinancing Debt
It is best to pay off all joint debts prior to divorce by selling family assets like the mortgage or car loans. Even if the spouses are in a trusting relationship prior to and after the divorce, it is still best to pay these off and avoid future credit problems.
Refinancing joint debts before divorce will help prevent complications. Refinancing in one spouse’s name and using the additional funds to pay off the old debt will release one spouse from the debt completely and permanently.
In many cases you can refinance your home loan, auto loan, or other loans that are in both spouses’ names at up to 100 percent of the current value. This will not only get a lower interest rate than the current mortgage, but will shorten or extend the time frame of your loan and take equity out for paying off other debts. This can be done prior to or after divorce.
Refinancing Requirements
If you are trying to refinance prior to divorce, get permission from your spouse to refinance in your name alone in order to pay off the old loan and release them from any indemnity or accountability for the bill. It is important to choose a lender who will allow you to do so, and many in Canada are willing to go through with this type of loan.
If refinancing is done after divorce and the loan is in both spouses’ names, both spouses will need to be present to sign paperwork and agree to the new loan terms. Refinancing any loan requires credit checks, and the person concerned must be present or give explicit consent to the company, in writing or in person, prior to the check being done.
Whether it is a consolidation loan or a mortgage, lenders may require both spouses to be present for the paperwork’s final draft and signing of the old loan. It would be wise for the spouses to be present at the signing of the new loan terms to ensure that the old loan will be paid off per the terms of the refinance.
Making Inquiries
For information on the specific rates, requirements and laws surrounding your divorce and refinancing options, it is best to contact the lender you plan on using. The loan officer or even mortgage officer may be able to answer all of your questions over the phone prior to signing any paperwork.
