Debts and Divorce

When people get married, divorce is the last thing on their minds. They are only thinking about how to make their relationship richer and more fulfilling than ever before. They spend a lot of time, effort, and money trying to set up a happy home. However, when a divorce does occur, not all resources and energy you put into the family can be returned or reimbursed to you. What you should aim for is an equitable and just division of assets and liabilities in the separation. With the help of the eminent family lawyers at Maatouks, that should hardly be an issue. Call us today for a free phone consultation.


What is a Debt in a Divorce

The average Australian household has a debt of over a quarter of a million dollars. That is quite a significant amount and cannot be dismissed in a divorce settlement. Property settlement is one of the most important aspects of divorce proceedings, in which the complete assets and liabilities of both parties are assessed and divided in an equitable and just manner between them. However, the aim of both sides is to maximise the assets they receive while minimising the debts they are made responsible for. Debts in property settlement can either be incurred by oneself or together with your spouse. In either case, a decision must be made regarding whether to include the debt in the asset pool depending on the purpose and other aspects of the debt.


Can I be Held Liable for My Spouse’s Debts During a Divorce

The nature of the debt and the financial conditions and responsibilities of each party plays a role in deciding who will have to take up a debt or a portion of it. If the debt was incurred by only one of the spouses for their individual purpose, then, the most likely course for the debt is to remain with that person. However, if the debt was a decision of both parties taken for the upkeep and improvement of the family, it would be added to the joint asset pool.


If the debts are minor, then, to prevent complications, the judge might decide to let each spouse handle their own debts. However, hardly any case is that simple and hence, the question of debt settlement comes. A lot of factors must be considered when deciding who needs to take up which debt, like the current financial state, future financial responsibilities, number of dependents, if any, medical conditions, present and future earning capacity, any foreseeable earnings or spendings that will seriously affect their finances, and so on.


Based on all these factors, the judge will decide how to separate the debts. In this process, it is entirely possible that a debt originally taken by your spouse may come upon you and vice versa. There is also the possibility that a loan may be refinanced so that only one party will have to take care of it, making things simpler. If you have sufficient assets, they might be sold to repay some of these debts in the property settlement in a bid to allow the spouses to step into their new life with zero or minimal historical debts from their deteriorated marriage or relationship.


Are Post-Separation Debts My Responsibility After Divorce

A lot of people make the mistake of thinking that the joint asset and liability pool to be divided gets closed and calculated on the day of the separation. But that is not true. The asset pool is calculated on the day of receiving the court consent orders for a binding financial agreement. Until then, any earnings, expenses and debts incurred will be counted into the asset and liability pool.


Often, this information may cause one or both spouses to start spending or taking debts with the intention of depriving the other of the assets to be divided. This is called dissipating the asset pool. If the judge deems that your post-separation debts were taken irrationally or illegitimately, with an intention to dissipate the asset pool, he may exclude that debt from the asset pool completely.


It is not uncommon for lawyers to use wastage or dissipation of assets to argue against valid debts and expenses to secure more assets for their client. You can argue against it and show the legitimacy of the debt, but the best solution is to finalise the financial agreement as soon as possible after the separation.


Which Debts are Excluded from the Asset Pool During Divorce Proceedings

As we have talked about before, the court decides whether a debt will be included in the joint liability asset and liability pool or not depending on the purpose of the debt and which parties it benefits. Depending on the complete assessment of these factors, the judge will decide who is responsible for the debt. However, there are a few common cases in which a judge will invariably decide not to include a debt in the pool. These include:


  • Debts that were taken by one of the two spouses solely for their benefit and the money obtained did not go into the family, matrimonial joint expenses, or the other spouse will be considered solely the responsibility of the spouse who took the debt. It does not matter if the debt was incurred before, during, or after the relationship.
  • Debts incurred due to irresponsible spending like gambling or drugs, that did not benefit the other spouse and in all probability, probably harmed the spouse and the family, will be considered as the sole liability of the responsible party.
  • Debts due to reckless actions that reduce the asset pool, like giving away joint assets to other people, incurring losses on a personal front like your own business, or paying other members of the family not involved in the relationship or marriage, which resulted in the reduction of the joint asset pool will again come under the responsibility of the one who took such actions.
  • Liabilities incurred through “waste”, i.e. deliberate, malicious actions meant to reduce the asset pool will again be vested in the responsible party only. However, it must be proved that those expenses can be classified as a “waste”. For example, if the money was spent right before financial disclosure, if the expense was unnecessarily lavish, or if an attempt was made to make a joint asset look like an individual one or conversely, an individual debt look like a joint one, it can be excluded from the joint asset pool.


Visit a Family Lawyer in Sydney if You are Worried About Your Debt After Divorce

The emotional turmoil of going through a divorce often causes one to overlook the financial aspects, which can decide your future. Instead of taking a risk, it is advisable to consult a family lawyer to sort out these aspects of a divorce. If you need expert family lawyers in Sydney to help you with debt and asset settlement after divorce, Maatouks Law Group is the best choice for you in Sydney.


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