What Happens to Debts in Divorce?
Assets get most of the attention in financial agreements. But debts matter just as much.
Debts are part of the property pool
In Australian family law, a property settlement does not just consider assets — it also takes into account liabilities. The Family Court looks at the net asset position of the parties: what they own minus what they owe.
This means debts — mortgages, personal loans, credit cards, tax debts, business loans, guarantees — are relevant to how property is divided on separation. Understanding what debts each partner carries, and who is legally responsible for them, is an important part of financial disclosure.
Legal liability versus relationship responsibility
There is an important distinction between who is legally liable for a debt and how a debt is treated in a property settlement.
A credit card debt in your name is legally your debt. The lender can only pursue you. But in a property settlement, a court can take that debt into account and adjust the asset division accordingly — effectively treating it as a shared liability even though you are the only legal borrower.
Conversely, a mortgage that is in both names is legally both partners' liability — meaning the lender can pursue either of you regardless of any agreement between yourselves.
Pre-relationship debts
Debts brought into a relationship — a HECS debt, a car loan, a personal loan taken out before the couple met — are generally treated differently from debts incurred during the relationship.
A financial agreement can document pre-relationship debts clearly and establish that each partner is responsible for the debts they brought to the relationship. This prevents one partner's pre-existing liabilities from affecting the other's financial position on separation.
Business debts
Business debts deserve particular attention. If one partner owns a business, that business may carry debts — loans, trade creditors, tax liabilities, guarantees. These business debts can affect the couple's overall financial position in a settlement.
A financial agreement can address how business debts are treated, clarifying that they belong to the business owner and are not shared liabilities of the couple. This is especially relevant where the other partner had no involvement in or knowledge of the business's financial position.
How a financial agreement addresses debt
A Binding Financial Agreement can document:
• Which debts each partner brings to the relationship as separate liabilities • How jointly held debts (like a shared mortgage) will be handled on separation • That business debts belong to the business owner and are not shared • How debts incurred during the relationship will be allocated
This clarity benefits both partners. The partner with fewer debts has certainty that they will not be responsible for the other's liabilities. The partner with debts has clarity about their own position and obligations.
As with assets, full and honest disclosure of all debts is essential for a financial agreement to be valid.