When common-law couples separate, they may be surprised to discover there is no legislative formula for dividing or distributing their debt. Creditors are not obliged to release debtors after separation, so it is not uncommon for one spouse, perhaps the one with better credit, to bear the burden of the couple’s entire debt afterwards. Common-law couples should therefore be aware of how the law in Ontario treats debts incurred during their relationship, how they can hope to resolve them or, alternatively, how to plan ahead prior to cohabitation.
The law in Ontario does not treat common-law couples in the same way as married couples. In fact, the Supreme Court of Canada has twice held that distinguishing between married and unmarried couples regarding property or debt division does not qualify as discrimination under the Charter of Rights and Freedoms [Quebec (AG) v A, 2013 SCC 5]; and Nova Scotia (AG) v Walsh, 2002 SCC 83.
Married couples are subject to Part I of the Family Law Act, R.S.O. 1990, c. F.3, which outlines a formula for how family property is divided after separation. Rather than dividing assets or debts themselves, the parties equalize the monetary value of their combined property that each has accumulated over the course of their marriage. In other words, each spouse adds up the total value of accumulated property as of the date of separation, subtracts their debts, subtracts the total value of all property they owned on the date of marriage, and then the spouse with more value to their name pays the other in order to equalize the net family property during the marriage. It ought to be noted that some property obtained within the scope of the marriage may be excluded in certain circumstances. The overall goal of this formula is to recognize in a formal way that marriage is an equal economic partnership, the consequences of which ought to be shared after separation. As the Family Law Act states in section 5(7):
The purpose of this section [of the Family Law Act] is to recognize that child care, household management and financial provision are the joint responsibilities of the spouses, and that inherent in the marital relationship there is equal contribution, whether financial or otherwise, by the spouses to the assumption of these responsibilities, entitling each spouse to the equalization of the net family properties […].
Additionally, the court has some authority under section 10 of the Family Law Act to partition, sell, and vest property in order to realize the equalization payment. In other words, courts can force parties to sell their real estate, transfer ownership of their vehicles, and transfer funds out of pensions and other bank accounts to ensure that the appropriate value is distributed to the appropriate spouse.
In contrary, there is no simple formula for handling debt for common-law spouses. The Supreme Court of Canada in Quebec (AG) v A, 2013 SCC 5 and Nova Scotia (AG) v Walsh, 2002 SCC 83 ruled that, whereas married couples voluntarily enter into equal economic partnerships, common-law couples – by choosing not to marry – had voluntarily chosen not to enter into such a partnership. As such, each spouse’s property and debt remains their own after separation. There are exceptions to this rule, but these exceptions can be debated heavily in court.
Ideally, former couples will work together after separation to allocate one another’s debt fairly and amicably. Part IV of the Family Law Act permits former spouses (both married or common-law) to prepare domestic contracts to address one another’s division of property, including debts, after separation. If both parties agree, then both parties may enter into a written contract (with certain minimum requirements that must be met) addressing their debts without the need for any court intervention. In short, both parties can agree to divide or distribute their joint debt in any way they wish… so long as they agree.
However, couples that cannot work together constructively after separation may need the court’s intervention. Unfortunately, because there are no clear formulas for handling family debt after separation, judges have been required to get creative with solutions.
In some cases, courts have held that spouses who pay off the family’s debts should at least receive a reduction in spousal support. However, these rulings depend on the facts of each case. In the case of Trottier v. Prud’homme, 2012 ONCJ 641, the court outright ordered that no spousal support ought to be paid so long as the payor spouse was paying off her debt and the recipient’s debt after separation. However, in the case of Dunn v. Dunn, 2011 ONSC 6899, the court ordered that the payor’s spousal support ought merely to be reduced, not eliminated, to account for his assumption of all family debts, including the recipient’s debts. Overall, courts have recognized that spousal support may be reduced to address one spouse assuming payments on the parties’ family debts.
However, if neither spouse claims spousal support to the other, then spouses may need to resort to seeking equitable remedies. Courts may award equitable remedies when the normal rules of ownership appear unfair or “inequitable”, as the name suggests. The most expansive ground for an equitable remedy in family law is “unjust enrichment”, which exists when one party benefits at the other’s expense without having a good reason in law or justice to retain that benefit (See Kerr v. Baranow, 2011 SCC 10). Certainly, courts have used unjust enrichment to apportion spouses’ debts. For example, the courts in Brunsdon v. Ulch, 2019 ONSC 4142 and Cline v. Moran, 2016 ONSC 4490 held that one spouse would pay back the other for expenses incurred on the other’s credit.
Ultimately, common-law spouses need to appreciate that they cannot incur debt together, without a prior contract between them, and then expect the issue to be resolved simply and smoothly at the end of their relationship. Spouses may need to get creative, and it helps to have a knowledgeable lawyer in your corner.
At Northern Law, we have lawyers ready to assist, not only with the fallout of a separation, but also with assisting parties prior to cohabitation or marriage by preparing agreements to avoid the troubles and tribulations of a separation. If you have questions regarding a separation and family debt, or are looking to discuss the particulars of your situation, contact us at (705) 222-0111 or info@northernlaw.ca