What happens to debts when you’re separating?

February 17, 2021

It isn’t uncommon for one person in the relationship to be across all the bills and finances. And when you’re together, that usually works. But what happens when you separate and you don’t know what you own or what you owe?

Finding out your financial position is a priority in the early weeks and months after separation. This is important because it’ll help you to understand what’s available for division. And this division doesn’t just take into account the assets — it also takes into account liabilities and debts. 

Understanding what liabilities and debts are owing and who’s responsible for them is fundamental to the process. It’ll allow you to start thinking about your own financial needs and options as you move forward. 

Working out what you own and what you owe

The first step is identifying your property pool. Your property pool will consist of what you and your Ex have (i.e. your assets and financial resources) and what you and your Ex owe (i.e. your liabilities and debts).

Examples of what you OWN include:

  • Superannuation
  • Bank accounts and investment accounts
  • Shares
  • Business interests
  • Family trusts
  • Your home and investment properties

Examples of what you OWE include:

  • Your mortgage
  • Car loans or leases
  • Credit cards
  • Any other debts such as tax debts

As you can see, we’re not just looking at what you hold jointly. We’re also looking at what’s in yours and your Ex’s sole names.

This can be really frustrating when you discover that there are more debts than you realised. You might be starting to worry about the impact this will have on what you receive from the settlement.

Joint Debts vs Sole Debts

Usually, all joint debts are taken into account in the property pool and split. How we deal with them can involve:

  • One of you taking on responsibility for the joint debt; or
  • Assets being sold, such as a house, to payout the joint debt

Likewise, debts in yours or your Ex’s sole name will often be included in the property pool and split. However, there are some circumstances when joint and sole debts may be excluded from the property pool. 

When can debts be excluded from a settlement?

A debt could be excluded if:

  • The debt is considered unreasonable or illegitimately incurred such as gambling debts or criminal acts;
  • You can prove that the debt is unlikely to be an actual debt owing such as loans from family members; or
  • You can prove that a debt has arisen from recklessness or negligence by your Ex, which has reduced the property pool available for division

These are not easy arguments to have and like everything concerning a legal or court process, you have to be able to present documentary proof and evidence to prove your position. 

The factors a Court takes into account when considering whether to exclude any debts from the property pool include:

  • Was the debt or loss incurred during the relationship and in pursuit of a financial benefit for the parties, or was it as a result of circumstances known to both parties such as a gambling addiction etc?
  • Is there a loan agreement, particularly relevant when we are looking at debts owing to family and friends?
  • Did the provider of funds communicate the terms of the debt or loan to both parties – was it a debt or a gift?
  • Are there any other indicators that support the debt or loan as being actual debt owing such as a loan agreement, a formal mortgage registered against the property or repayments?

What happens if a debt is excluded?

If it’s accepted that it’s not appropriate to include a debt in the property pool and split, then we can wholly exclude the debt from the property pool and considerations in the division between you and your Ex.  

However, there are times when a debt or loss may need to be added back into a property pool as though the money had never been spent or lost. 

As discussed above, having debts or losses excluded from the property pool and settlement can be challenging, so it’s important to get legal advice as there is no one size fits all approach. It’s completely dependent on the circumstances of your situation.

If a debt is included in the property pool, then a resolution may involve each of you keeping any debts in your own name, paying them out from the sale of assets, or your Ex taking over the debt. The right approach will depend on your financial situation.

Unfortunately, a number of our clients only become aware of the true extent of what they and their Ex own and owe after separation. Sometimes, one party may have dealt with assets and liabilities after separation in a way that may have a negative impact on the other party. 

It’s for all these reasons that it’s important to get legal advice as soon as possible, so you can get across the financial situation and take steps to maximise your options. Once you know what you can receive, you can begin to rebuild and move forward.

If you want help getting clear on your situation and options, then contact us to book a free clarity call with our team today.



This article is for general information purposes only and does not constitute legal advice or any other professional advice.

Feeling unsure where to start?

Let us guide you through what’s involved in untangling your relationship and give you the tools to set yourself up to move forward.

Feeling unsure where to start?

Let us guide you through what’s involved in untangling your relationship and give you the tools to set yourself up to move forward.

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