A question we often get as family lawyers in Perth is: are debts split in a property settlement?
When a relationship ends, a property settlement usually involves much more than deciding what happens to the family home, savings and other assets. Debts and other liabilities also need to be considered when working out each person’s overall financial position.
For separating couples in Western Australia, there isn’t a simple rule that means every debt is automatically divided equally. The way debts are treated in a property settlement depends on the circumstances of the relationship, the nature of the debt and the overall financial position of both parties.
Are Debts Split in a Property Settlement?
When working out a property settlement, the assets and liabilities of the relationship are considered together to establish the overall financial position. This can include mortgages, personal loans, credit cards, tax liabilities, car loans and other debts.
The Family Law Act 1975, which applies to property settlements in Western Australia, gives the Federal Circuit and Family Court of Australia power to make orders altering the parties’ property interests. The legislation also contains provisions dealing specifically with debts and liabilities.
This doesn’t necessarily mean that every debt will be divided equally, or that one person automatically becomes responsible for half of the other person’s debts.
What Types Of Debts Can Be Included In A Property Settlement?
There are many different types of debts that can form part of the financial picture when a couple separates. These might include a mortgage over the family home, credit card balances, personal loans, car finance, investment loans, tax debts or business-related liabilities.
The circumstances surrounding each debt can be important. For example, there can be a difference between a mortgage taken out jointly to purchase the family home and a personal debt accumulated by one person.
The Court considers the overall financial circumstances rather than applying a blanket rule to every liability. Debts therefore need to be identified alongside the assets when preparing for a property settlement.
Are Joint Debts Treated Differently From Individual Debts?
A debt being in one person’s name doesn’t necessarily mean it will automatically be ignored when considering the overall property settlement. Similarly, a debt held jointly doesn’t necessarily mean the financial outcome will simply be a 50/50 split.
It’s important to distinguish between the responsibility a person has to a lender and how the debt is treated between separating spouses. A bank or other creditor may still have rights against both borrowers under the original loan agreement. A property settlement between the parties doesn’t automatically change the terms of that agreement unless the relevant lender agrees or an appropriate order is made. The Family Law Act contains provisions allowing certain orders to be made involving creditors in appropriate circumstances.
What Happens To The Mortgage After Separation?
The mortgage is often one of the largest liabilities in a property settlement, particularly where the family home is involved. If one person keeps the property, the settlement may need to address how the mortgage will be managed and whether the person retaining the home can refinance and take the other person’s name off the loan and deeds.
Alternatively, the property may be sold, with the outstanding mortgage and other relevant selling costs paid from the sale proceeds before the remaining funds are dealt with as part of the settlement. The practical outcome will depend on the value of the property, the mortgage balance, the parties’ other assets and liabilities and their overall financial circumstances.
What If One Person Has A Lot More Debt?
It’s possible for one person to have significantly more debt than the other. That doesn’t automatically mean the person with less debt receives more or less property, nor does it mean the other person automatically becomes responsible for the additional debt.
The Court considers the overall financial position of the parties. This means the assets and liabilities need to be looked at together, rather than examining each debt in isolation. The Federal Circuit and Family Court of Australia explains that the way assets and debts are ultimately shared depends on the individual circumstances of the family and that property settlements can differ significantly from one family to another.
What About Debts Taken On After Separation?
Separation doesn’t necessarily mean that every financial issue arising afterwards can be ignored when resolving a property settlement. There may be debts incurred after separation that are relevant to the parties’ overall financial circumstances.
For example, there may be ongoing mortgage payments, tax liabilities, business debts or other financial commitments that arise after the relationship has ended. The timing and circumstances of a debt can therefore be important when determining how it should be treated. Recent Federal Circuit and Family Court decisions have considered post-separation debts as part of the broader financial circumstances in property proceedings.
What If One Person Spends Money Or Takes On Debt Recklessly?
Sometimes one person may be concerned that their former partner has accumulated substantial debt or spent relationship funds after separation. This can become particularly complicated if there are concerns that assets have been deliberately reduced or liabilities have been incurred in circumstances that affect the other party.
The Court can consider the circumstances surrounding the parties’ financial position when determining a property settlement. This doesn’t mean every financial decision made after separation will result in an adjustment. The specific facts, amounts involved, purpose of the expenditure and overall financial circumstances will all be relevant. Recent cases have considered issues including significant post-separation debt increases and the dissipation of assets.
What About Credit Card Debt?
Credit card debt is another common issue following separation. A credit card may be held jointly or in one person’s name, and there may be questions about when the balance was accumulated and what the money was used for.
It’s important to keep records of significant debts and transactions, particularly where there’s disagreement about whether a liability should be considered in the property settlement. Credit card debt shouldn’t simply be assumed to be a joint responsibility because it was accumulated during the relationship, nor should a debt in one person’s name automatically be excluded. Its treatment will depend on the circumstances and the overall property settlement.
What About Tax Debts?
Tax liabilities can also need to be considered when working out a couple’s financial position. This could include personal tax debts, business-related tax liabilities or other amounts owed to the Australian Taxation Office.
Tax debts can be complicated because responsibility may depend on who incurred the liability, the circumstances in which it arose and whether it relates to income or activities that benefited the family. It’s important that tax liabilities are disclosed when assessing the overall financial position. A property settlement also doesn’t simply erase an existing liability to the ATO or another creditor.
Can A Property Settlement Change Who Is Responsible For A Debt?
In some circumstances, the Family Law Act allows the Court to make orders involving creditors and debts. For example, section 90AE provides circumstances in which an order can direct a creditor to substitute one party for both parties in relation to a debt, or change the proportion for which the parties are liable. There are specific requirements that need to be satisfied before such an order can be made.
This is an important distinction because a property settlement and the terms of a loan are not necessarily the same thing. If you’re hoping to transfer a mortgage, personal loan or other debt into one person’s name, the lender’s position may also need to be considered.
What If The Debts Are Greater Than The Assets?
Not every separating couple has a positive property pool. In some circumstances, the parties may have substantial debts and relatively few assets, particularly where there are large mortgages, business liabilities, tax debts or other loans.
The Court can deal with financial circumstances where liabilities are significant, and recent cases have considered situations where a party may remain in a net debt position following a property adjustment. The existence of substantial debts doesn’t mean there’s a standard formula for dividing them. The overall circumstances still need to be considered when determining whether a proposed property settlement is appropriate.
Why Full Financial Disclosure Matters
When negotiating a property settlement, both parties need to have a clear understanding of their joint and individual overall financial positions. This means identifying relevant assets as well as debts and other liabilities.
Financial disclosure can include documents relating to bank accounts, loans, credit cards, tax returns, businesses, investments, superannuation and property. If a debt or asset isn’t disclosed, it can make it much harder to work out whether a proposed settlement properly reflects the family’s financial circumstances. Accurate information is particularly important where there are concerns about significant liabilities, businesses or complex financial arrangements.
Is A 50/50 Property Settlement The Same As Splitting Everything In Half?
One of the most common misconceptions about property settlement is that everything is simply divided down the middle. A property settlement isn’t necessarily a matter of adding up the assets, subtracting the debts and dividing the remainder equally.
The Court’s approach involves considering the parties’ financial and non-financial contributions and their future needs, along with other matters set out in the Family Law Act. Since June 2025, the legislation has also expressly addressed the economic effect of family violence where relevant. The Federal Circuit and Family Court of Australia notes that the way assets and debts are shared depends on the individual circumstances of each family.
Getting A Clear Picture Of Your Financial Position
If you’re preparing for a property settlement after separation or divorce, the best starting point is to make a complete list of your assets and liabilities. This should include property, bank accounts, investments and superannuation as well as mortgages, credit cards, personal loans, tax debts and other financial commitments.
Having accurate information about what is owned and owed can make it easier to understand the overall financial position and identify areas that may need further investigation. It’s also important to remember that the way a debt is legally held and the way it may be treated as part of a property settlement are two separate questions.
There’s no automatic rule that all debts are split equally in a property settlement. In Western Australia, the treatment of debts forms part of the broader assessment of the parties’ financial circumstances, contributions and future needs. The outcome will depend on the individual circumstances of the relationship and the financial position of both parties.
If you’re looking for divorce lawyers in Perth that can assist you with property settlement matters after separation, Hickman Family Lawyers offers a free 15-minute, no-obligation information call where you can discuss getting legal help with your property settlement.
