Are debts shared in a divorce?
If you have recently separated or are considering separating from your current partner, you will naturally be asking yourself if you will be liable for any debts incurred during the relationship in the post-separation settlement.
Broadly speaking, in the same way that all marital assets will be considered during a post-separation settlement, so too must any debts (with some few exceptions).
In determining what each party is entitled to in a family law separation, the first step is to add up the value of all the assets and subtract the value of all the debts to get a net ‘pool’ of assets. Learn more.
Subsequent net assets will then be shared based on the contributions of each party to those assets as well as the current and future financial circumstances of each party moving forward.
But, what if the debts are not mine?
As a starting point, the court will generally presume that debts incurred during the relationship were accrued to the mutual benefit, or at least the mutual knowledge or consent of the other party.
However, in some circumstances, there will be situations where the debts can be proven to be the responsibility of one of the parties and not both will be liable for them.
For example, where one party has taken on debt through something that was unique to one party over the other – for the purposes of gambling or going on a spending spree – the court would likely consider excluding that debt from being included in the pool.
What if the debts were accrued after we separated?
Sadly, it is all too common for one party to plunder joint bank accounts or accrue debt using a joint or personal credit card or by taking out a personal loan from a bank (as an example) in the aftermath of separation.
The dissipation of assets (a potential wastage or ‘add back’ argument) is a different consideration to the accrual of further debt.
Fortunately, with the accrual of debts, the family courts will look at the timeline of when the debts were accrued.
If there is clear evidence of debts accruing by one party – and to the detriment of the other – in the separation period and prior to divorce proceedings, the court will take these matters into consideration.
If however, the debt was incurred post-separation, but both parties benefited from it during the relationship or post-separation (for example, a tax debt), then the court might consider including that debt in the pool of assets.
There will be many nuances and potential different scenarios in terms of what debts are or are not included, which can understandably, be confusing to parties trying to navigate their way through a family law settlement.