How is Spousal Debt Dealt with in Divorce and Separation?

Spousal Debt Dealt with in Divorce and Separation

When a couple decides to go their separate ways, attention is often given to how their assets will be split. The burning question becomes ‘who gets what?’ Opposing parties are quick to claim what they believe is rightfully theirs, but when it comes to debt, the separating parties aren’t so eager to claim it.

The average Australian household has debt of $250,000 so it’s highly likely that a separating couple will need to decide how they will divide not only their assets, but also their debt. This is particularly true if the couple are in the early years of a mortgage. Debt can also range from student and credit card debt, to a car loan or gambling debts.

How is debt dealt with after divorce or separation?

Debts are dealt with in a property settlement which outlines how assets and debt will be divided. A property settlement can be negotiated outside of court, or if a couple cannot come to an agreement then a court can determine a property settlement for them.

When deciding on a property settlement for both married and de facto couples, a court will take a 4-step approach:

1. Identify and value all assets and debts (this is the asset pool)
2. Consider the contributions of each party
3. Consider the future needs of each party
4. Will the proposed property settlement achieve a just and equitable outcome for both parties?

A court will generally take the position that debts accrued during the relationship, either jointly or individually, were for the mutual benefit of both parties with mutual knowledge or consent of the other party and therefore responsibility is shared by both parties.

What if the debt is not mine?

If the debt was accrued by one party for their own purposes and not for the benefit of both parties, then a court may exclude this debt from the asset pool. Examples include debt that was taken on for the purpose of gambling or going on a spending spree.

Whether debt was accrued before, during or after the relationship, when deciding if a couple should share responsibility for the debt, the question will always be whether the debt benefited both parties.

Seek Legal Advice

If you are going through a separation and worried about how your joint debt or your spouse’s debt will affect you then you should seek advice from a family lawyer. At Taylor & Scott Lawyers we work to achieve the best outcomes for our clients and can help protect you from unfair financial liabilities – contact us today to see how we can help you.

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