How are debts divided when you divorce?

Deciding who’s responsible for debts after a breakup can be difficult, and unlike assets that were jointly owned, chances are neither person will be eager to take full responsibility. 

Ideally, couples will be able to work through the process themselves or with help from a mediator. Any agreement they reach will then need to be formalised by the Federal Circuit and Family Court of Australia through what’s known as a ‘consent order.’

But sometimes a mutual agreement isn’t possible and it’s necessary for the courts to weigh in.

This can be a drawn-out and complicated process, especially when your finances are still deeply intertwined. While outcomes will vary case by case, here are a few things the courts tend to consider.

Joint debts

Just like assets you and your ex-partner owned together, joint debts will have to be identified, valued, and divided in a way that’s fair and equitable.

If they can be paid off via the sale of assets, then both parties can walk away debt-free. But things aren’t guaranteed to play out that way. In some cases, it might be necessary to continue paying jointly or for one person to assume sole responsibility.

If it falls to the court to decide how a debt will be divided, it will consider things like:

• If the debt was acquired before or during the marriage
• If a binding financial agreement (commonly known as a pre-nup) is in place
• Whether one party has a lower earning capacity or other obligations (such as custody of kids) that would warrant a smaller share of the debt
• Whether one party has paid a larger share of the debt than the other

Debts that are in your name or your ex-partner’s name only

You might think that if a debt is in just one person’s name, there’s no question about who’s responsible for it. But depending on the nature of the debt and when it was incurred, it could be considered a joint responsibility.

What really matters here is whether it was taken out for the benefit of the relationship. For example, if your ex-partner took out a loan to purchase the family car, then even if the loan is solely in their name, it could still fall to both of you to repay.

In some cases, one party will put their hand up to assume sole responsibility for a debt. This can be preferable, as it simplifies financial arrangements moving forward and reduces the chance of missed payments affecting each person’s credit rating.

But even if this is spelled out in official documents, it’s no guarantee that creditors will let the other person off the hook. Here, it might be necessary to refinance or even to file a court order so a creditor formally releases that person from the debt. 

Debts that were taken out after you separated

It might seem surprising, but debts that were acquired after you separated but before property settlement can still be considered part of the property pool. Again, whether or not they will have to be divided between you and your ex-partner comes down to the nature of the debt and if it was meant to benefit both parties.

That said, there are situations where a court is unlikely to hold you accountable. That includes if your partner is intentionally trying to reduce the pool of divisible assets or if they’re simply behaving recklessly (such as by running up a credit card in order to gamble).