Navigating a divorce in Australia is no easy task, but with the right support, you can move forward smoothly. Separating your finances from your ex-partner can be complex, but it’s crucial to do so clearly and decisively. Take the time to have open discussions and make clear arrangements to avoid any financial confusion down the track.
When it comes to settling financial matters, there are two aspects: the division of assets and the division of debts. The one common factor in both aspects is ‘being fair’ and this is where the real challenge lies, especially when you are settling debts.
Mortgages, credit card loans, personal loans, student debts, etc. are some of the liabilities a couple may be responsible for during their relationship. When they decide to part ways, these liabilities need to be managed, and arrangements need to be made to either pay them off or keep the payments going. Splitting assets fairly during a divorce can be tough, but dividing debts is even trickier. It’s common for one or both partners to try to avoid responsibility, leading to an unfair distribution of liabilities.
When it comes to splitting the assets, each partner is forthcoming in their claim, which takes a detour when they speak of sharing the debts. This attitude seen in most couples makes it difficult to divide the liabilities fairly. There may be several reasons behind this, like the possible long-term consequences that shouldering a debt may have on their financial wealth and the complications involved in distributing a debt equitably. On the other hand, splitting an asset is more straightforward and promising for the future.
Be it the division of assets or debts, fairness is key. A thorough assessment of the debt situation of both parties would help determine who is responsible for the debt and whether it was incurred for mutual or joint benefits. Likewise, it is also crucial to consider the future financial capacity of both parties individually after separation.
When we speak of fair debt division, equitable and practical are two aspects. While equity recommends the division of debts based on the contributions and financial circumstances of each party, practicality highlights the feasibility of possible solutions. To arrive at a debt division arrangement that is both equitable and practical, the parties involved must be flexible and cooperative and resort to open communication. It is crucial to carry out a meticulous assessment of the financial capability of both parties individually, and this would include their income, assets, and liabilities.
The Family Law Act 1975 encompasses all stipulations relating to debt allocation between a separated couple. When the court intervenes in debt allocation issues, it considers factors like whether the debt was incurred before, during, or after the relationship, the contribution of each party, financially and non-financially, and whether children are likely to be affected by asset and debt division.
No matter how emotionally charged the parties may be, it is important to approach all financial matters objectively to arrive at an equitable and fair debt-sharing arrangement.
Debt division processes take time, and hurrying through them is never an option. It is crucial to go through every step meticulously while ensuring honesty and cooperation from both parties. Gathering information from both parties about their financial situation, assessing their joint debts and prioritising the ones with high interest rates, considering the various options, etc. are some of the stages you have to go through before designing a mutually agreeable debt-sharing plan.
It is important to note that both parties are legally required to disclose their debts and assets when it comes to a separation or divorce. Hiding debts from the other party may impair the assessment of the financial situation of both parties and impede an equitable division of the debts. Failure to fully disclose assets and liabilities may not only lead to legal consequences but also strain the trust level between the parties.
Financial contributions and circumstances are the most crucial aspects whenever there is a debt allocation to process. Financial contributions include income earned, assets acquired and owned, and payments made towards debts, while support provided by the other partner also carries value as non-financial contributions. Income, assets, liabilities, and the earning potential of each partner are some of the factors that fall under financial circumstances and are also considered during debt division.
Handling shared debts requires some planning and open communication between both parties.
After full disclosure and a detailed assessment of the assets and debts of both parties, there needs to be some careful planning of how to handle these shared debts. The financial circumstances of both parties are considered, after which the available options for repayment are explored and workable agreements are made.
Allocation of shared debts is not all black and white, and to understand them, one needs to consider several factors. Assets, debts, contributions, and circumstances play an important role in allocating the debts to each party. When it comes to sharing debts, it needs to be determined if the debts were incurred as a result of reasonable household and other living expenses like mortgages, student loans, etc. or were incurred as a result of unreasonable spending, like gambling, etc. While reasonable debts may be equitably shared between the parties, unreasonable debts would likely end up as the sole responsibility of the one who borrowed the said amount.
While divorces and separations may be extremely hurtful and the involved parties may not be in the mind space to handle financial matters, they need to be aware, nonetheless. Both parties need to stay ahead and be financially aware to avoid taking on an ex’s debt or being denied a claim to an asset.
While pre-nuptial agreements are a good way to prevent financial mess during separation, it doesn’t always happen. So, it is a good practice for both partners to stay aware of the earnings, expenditures, borrowings, and outstanding, even when they are in a relationship, irrespective of who primarily handles the family or joint finances. This helps them when they decide to separate and need clarity on their financial circumstances to decide who takes on what debt.
Being financially literate implies that you have considerable knowledge of your financial obligations, stick to your budget plans, manage your debts, and have reasonable savings. This would help you avoid post-divorce debt burdens, given your better financial circumstances.
A financially aware spouse or partner would certainly have a thorough understanding of their financial situation and encourage open and honest communication in disclosing assets and debts in cases of separation. Financially aware partners would also most likely take proactive measures like signing a prenup and can discern warning signs of a possible financial crisis. Such cognisance would help you stay ahead and prevent major debt disputes.
When it comes to splitting assets or dividing debts, you need to focus on the long-term consequences of the outcome and be in control of the situation to ensure a financially secure future.
Assessing your financial situation by taking stock of your income, expenditures, assets, and liabilities will help you prevent an unfair division of debts and assets. While you discuss debt division, you need to highlight the high-interest and long-term debts. You also need to consider your capacity to repay and manage them. Above all, you need to get some professional financial guidance before you decide on any shared debt or debt allocation agreement.
If you feel the debt allocated to you is unfair, you ought to seek legal assistance. A family lawyer can help you understand your rights in this matter and guide you. If there has been an unfair debt division due to partial disclosure of assets and debts by the other party, a family lawyer can help reopen your case and challenge the decision, leading to a reassessment of your debts and assets.
Once the division of debts is finalised, it is upon you to develop a robust game plan for a financially secure and stable future. Seek the guidance of a professional financial advisor if you have to, and design financial plans that will leave room for your short- and long-term financial goals and even some savings. This is critical for you to stay in control of your finances and avoid any financial entanglements with future ex-partners.
At Maatouks Law Group, we have a team of seasoned family lawyers with expertise in settling financial matters and ensuring equitable division of debts.
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