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When thinking about how your property pool could or should be split, it’s essential to factor in debts, such as mortgages, personal loans, tax debts, and credit card debts, alongside assets like the house, cars, investments and superannuation.
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How are debts treated under Australian family law?
Under Australian family law, debts – shared and individual – play the same role as assets, like houses, cars, investments, businesses and superannuation, in determining the total value of the property pool. This includes:
- Mortgages
- Car loans
- Personal loans
- Tax debts
- Credit card debts
- Personal loans from family
How the value of the property pool is calculated
Total value of Assets
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LESS |
Total value of Debts
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How do the courts determine if a debt forms part of the property pool?
Generally speaking, debts are seen to be a shared responsibility, regardless of whether they were acquired before or during the relationship. Debts after separation for living, legal or shared expenses are also typically seen as a shared responsibility.
When considering property and financial settlements, the court looks at all debts and determines if it forms part of the property pool based on whether the debt benefited both of you or not. This includes:
Mortgages and secured debts
Secured debts for assets that form part of the property pool, like mortgages, car, property and investment loans) form part of the property.
Debts incurred before the relationship began
Debts that date back to before the relationship began will generally form part of the property pool but will typically be accounted for when determining the split of the property pool and that individual’s contribution to the relationship (alongside assets they brought into the relationship).
Debts incurred after the relationship ended
Because it can take some time to finalise a property settlement, debts incurred after the relationship ended will often be included in the property pool, providing they were for reasonable living and legal expenses or shared expenses, like school fees, loan repayments and utilities.
Debts in one person’s name
In most cases, individual debts in one person’s name will be included in the property pool, unless it can be proved that they were recklessly incurred (gambling, excessive spending, gifting etc) or that you did not benefit from it anyway.
Personal tax debts
Personal tax debts generally form part of the property pool, as it is assumed that the money from unpaid taxes was used for the benefit of the couple unless it can be proved that the extra monies were used solely for the benefit of that individual.
Debts you didn’t know about
If your partner has taken on debts you didn’t know about, the court will consider whether that debt benefited them solely or you both.
Outstanding fines
Outstanding fines are not included as part of the property pool.
Debts incurred as a result of gambling, drug addiction, wastage or reckless spending
Debts incurred as a result of reckless spending or wastage won’t be included in the property pool if sufficient evidence can be produced to prove that was how or why they were incurred.
What happens if the debt DIDN’T benefit both people?
For a debt not to be included in the property pool, we need to be able to prove that the spending was reckless, wasteful did not benefit both people. Proving this can be difficult unless there are bank and credit card statements, receipts, accounts, invoices, etc, that can be used as evidence to prove the claim.
Need advice
If you’re navigating a separation or divorce need help understanding what may or may not be included in the property pool and how it may be split the team at Lakey Family Law is here to help. We have extensive experience in all aspects of divorce, property settlements and parenting matters and can assist. Contact us for an initial, obligation-free chat.
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