Divorce is one of life’s most challenging transitions—emotionally, practically, and financially. Amidst the uncertainty, figuring out how to divide debt can feel overwhelming. While most people focus on how assets like the family home are shared, the reality is that dividing liabilities, such as credit card balances or a mortgage, can shape your financial future just as much.
So, how is debt divided in divorce? The answer isn’t always straightforward. It depends on a mix of legal principles, financial circumstances, and negotiation. In this article, we’ll break down the key considerations that influence debt division, so you can better understand your financial position during a separation.
Marital vs separate debt: understanding the basics
You must first determine which debts are joint and which are personal before dividing anything.
- Marital debt, often referred to as joint debt, generally includes debts incurred during the marriage, regardless of who signed the loan documents. This could include a car loan, shared credit card debt, or a mortgage debt over the family home.
- Personal debt can refer to obligations taken on by one party, usually before the relationship began or post-separation, that did not benefit both parties or the family.
This distinction is vital when determining which liabilities you seek to argue should be or are part of the property settlement and which fall outside the scope of joint responsibility.
Community property vs equitable distribution
While some countries operate under community property laws, Australia uses a principle of equitable distribution of property, governed by the Family Law Act 1975. This means the Family Court doesn’t just split everything 50/50. Instead, it divides the asset pool, including debt and divorce obligations, in a way that is fair and reasonable.
Courts usually treat all debts incurred during the relationship that benefited both parties as joint liabilities and include them as part of the property to be divided.
Key factors courts consider when dividing debt
If the division of debt reaches court, several factors come into play. These include:
- Each party’s income and financial resources
- Ability to repay debts
- Who incurred the debt, and for what purpose
- Whether the debt was for family benefit or individual use
- Any wasteful or reckless spending by either party
For example, if one spouse racked up credit card debt on reckless spending without the other’s knowledge, the court may attribute that liability solely to the spender.
Dealing with joint Debt: credit cards, loans & more
Joint debts, such as shared credit cards or personal loans, can be particularly tricky. Regardless of who used the funds, lenders generally hold both parties legally liable. That means if your ex-spouse stops making payments, the creditor can pursue you for the full amount.
Even if a court orders one party to repay a debt, that order doesn’t bind the lender. It’s important to refinance or separate joint accounts wherever possible to avoid ongoing liability.
Negotiating debt division through mediation
You don’t necessarily need to go to court. Many separating couples resolve matters through mediation or collaborative legal processes, which offer more flexibility and lower costs.
In mediation, you can negotiate a fair outcome. For example, one partner may agree to take on a mortgage debt in exchange for retaining the family home, or the couple might divide credit card debt based on income and spending history. You can formalise these agreements through a Binding Financial Agreement or Consent Orders under the Family Law Act 1975.
Protecting yourself against future liability
One of the biggest risks in debt and divorce is remaining financially tied to your ex. If you don’t properly separate joint accounts or loans, you may end up responsible when your former partner stops making repayments.
To protect yourself you MUST speak to a family lawyer first, but some ideas include:
- Refinance or separate joint debt
- Make sure any personal debt is clearly identified
- Formalise all agreements through the Family Court
- Keep records of any repayments you make after settlement
These steps help preserve your credit rating and support a clean financial break.
What about student loan debt?
Many people ask how student loans are treated during a divorce. In Australia, the law treats student debt, typically a HELP or HECS-HELP loan, as personal liability because it ties the obligation to the individual’s income and education.
In most cases, the person who incurred the student loan remains solely responsible for it, even if they took it out during the marriage. However, the existence of student debt may still influence the overall property settlement, particularly when assessing future financial needs.
What if your ex doesn’t pay their share?
Unfortunately, even a well-crafted agreement or court order doesn’t guarantee compliance. Creditors may still hold you liable if your former spouse fails to pay their assigned debts.
In such cases, you can:
- Seek enforcement through the Family Court
- Provide evidence that the debt repayment was ordered by the court
- Take steps to recover any money you’ve had to pay on their behalf
It’s also worth speaking to a family lawyer to understand your options if your financial wellbeing is at risk.
Need guidance on dividing debt in your divorce?
Every divorce is different, and so is every financial settlement. At Loukas Law, we help you understand your rights and responsibilities, so you can make confident, informed decisions about your future.
Our experienced family lawyers help you navigate the complexities of debt division in divorce. We offer clear, compassionate support, whether you’re going through mediation or preparing for court, and stay focused on achieving the best possible outcome for you.
Book a confidential consultation today and take the first step towards a fair financial resolution.