As a Family Lawyer two of the most common questions I am asked when a relationship breaks down, and there are assets and debts to be sorted, are “who is responsible for the debt?” and, “why should that responsibility be shared?”
Debts of a relationship can be packaged into many forms but the key principles are these:
- when the debt was incurred
- for what reason
- the debt that existed at separation and those incurred after separation.
WHEN THE DEBT WAS INCURRED
If your partner had debt before you met him/her and that debt carries on into the relationship and still exists at the time of separation it may be omitted from the pool of net assets. However if you both take that debt, and add to it during the relationship, then both parties become responsible for it and it can be taken into account at the end of the relationship.
If debt is created during the relationship, regardless of what name it was created under, or for what reason, the court usually says it’s a debt of the relationship that both become responsible for.
FOR WHAT REASON
People usually incur debt in a relationship to buy a house or car or on credit cards. However, if debt was incurred and only one party to the relationship benefited, the Court will treat is as a joint debt.
The purpose of the loan/debt is not relevant in most cases. The key is the timing of the debts and if they were incurred during the relationship, it is more than likely to be deemed a joint debt.
THE DEBT THAT EXISTED AT SEPARATION AND THOSE INCURRED AFTER SEPERATION
At separation debt on mortgages and credit cards have to become someone’s problem. If you continue to use the credit card post separation, the debt you have incurred can become your sole responsibility. This is a very different principle to debts incurred in marriage.
When you start talking division of assets, the debts that exist at the time of separation are the relevant debts to be taken into account and it is important when establishing debt levels, post separation, that those loose ends are met with an agreement sooner rather than later. Ideally, you should consult a lawyer as soon as practicable to understand the implications of debt and how it may affect you in the wash up of a property settlement. Every case is different so it is vital you seek advice to help you understand what applies in your particular circumstances.