Are Debts Shared in a Divorce?
A Guide by Dot Legal, a Law Firm in NSW, Australia
When couples decide to end their marriage, one of the most common concerns is how they will divide their assets and debts. Dividing assets can be a difficult process, but what about debts? Are they shared equally in a divorce?
In Australia, the Family Law Act 1975 governs the division of property and debts during a divorce. The act outlines the principles that the court must consider when deciding how to divide property and debts between the parties. This article will explore how debts are shared in a divorce, and what you need to know.
The First Step in Property Division
Before discussing the division of debts, it is important to understand the first step in property division. The first step is to identify and value all the property and debts that the parties own, either separately or jointly. Property includes assets such as the family home, investment properties, cars, bank accounts, shares, and superannuation.
Debts include liabilities such as mortgages, personal loans, credit card debts, and other financial obligations. Identifying and valuing debts is important because debts are considered as part of the overall property pool.
The Property Pool
The next step is to determine the value of the property pool. The court considers the total value of all the assets and debts of the parties as at the date of the final hearing. The value of the property pool is then used as a starting point for dividing the property and debts.
The court’s objective is to divide the property pool fairly and equitably, taking into account the parties’ individual circumstances. The court may consider various factors such as the parties’ financial resources, their earning capacity, their contributions to the marriage (both financial and non-financial), and their future needs.
Once the court has identified the property pool and considered the relevant factors, it will make orders for the division of property and debts. The court has the power to make orders for the payment of debts, including joint debts.
In deciding how to divide debts, the court considers the following factors:
- Who incurred the debt? The court will consider who incurred the debt, and whether it was incurred jointly or separately. If one party incurred the debt solely for their own benefit, the court may order that party to be solely responsible for the debt.
- When was the debt incurred? The timing of the debt is also important. If the debt was incurred after the parties separated, the court is less likely to consider it as a joint debt. However, if the debt was incurred during the marriage, the court is more likely to consider it as a joint debt.
- What is the purpose of the debt? The court will consider the purpose of the debt. If the debt was incurred for the benefit of the family, such as a mortgage or car loan, the court is more likely to consider it as a joint debt.
- The capacity of each party to pay the debt The court will also consider the capacity of each party to pay the debt. If one party has a higher income or more assets, the court may order that party to be solely responsible for the debt.
In some cases, the court may order that both parties share responsibility for a debt, either equally or in proportion to their financial resources.
Dividing debts in a divorce can be a complex and emotional process. It is important to seek legal advice to ensure that your interests are protected. At Dot Legal, our experienced family law team can provide you with practical and strategic advice on how to navigate the property division process, including the division of debts.
To conclude, debts are not automatically shared equally in a divorce. The court considers various factors when deciding how to divide debts. By understanding your rights and responsibilities under NSW laws and seeking professional help, when necessary, you can ensure that the process of administering your property is fair, effective, and legally binding.