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How Is Debt Split in Divorce?

by Phil Testa - 11 Jul 2022, Monday 336 Views Like (0)
How Is Debt Split in Divorce?

Divorce is a difficult time in a person's life. When you combine debts in a divorce with attempting to find out how debt is distributed in a divorce, you've got yourself a real-life nightmare.

The couple's assets are split in a division of assets after a separation and eventual divorce. This is an important but not always pleasant process.

Debt accumulated during the couple's marriage is also distributed, much like assets, explains the family lawyer Adelaide. The following debts are assessed during the property settlement process:

  • Loans from banks
  • Debts related to mortgages
  • Debts on credit cards
  • Loans for automobiles


During a divorce, asset division does not have to be 50/50, and it should not be presumed to be, as per the divorce lawyer Adelaide. Property settlements are typically done on a case-by-case basis, with no two cases being the same. A property settlement is often a four-step process that your lawyers carefully follow to guarantee that your future financial demands are addressed.


Things to consider when splitting debt in divorce

In a divorce, the debt is divided during the property settlement between the two parties. The following are some of the factors that determine how debt is divided:


  • When was the debt incurred (before to, during, or following the relationship)?
  • Which side was responsible for the debt?
  • During the relationship, who was responsible for paying off the debt?
  • What was the total amount of debt accumulated, and how did it affect the overall asset pool?
  • Is the debt accompanied by an asset?


Other elements influencing judicial proceedings determining how debt will be split during divorce include:

  • The length of a relationship (marriage or De Facto)
  • Contributions made financially throughout the cooperation
  • Contributions made at home (and elsewhere) throughout the marriage
  • If you have any children or dependents, tell us about them.
  • Income disparities between the two parties


When deciding how debt is shared in a divorce, the court will consider who incurred the debt, the names under which the debt is held, and the debt's purpose. All of these factors will be taken into account, but just because a debt is in one person's name does not imply it will continue in that person's name after the divorce.


What happens to a mortgage during divorce ?

If a couple has a mortgage on a home they bought together during their marriage, one of them will normally buy the other out in the event of a divorce. As a result, one party will have sole ownership of the property, as well as the mortgage. You won't have to pay stamp duty to transfer your half of the property to your partner, which is a welcome relief.


Here are some examples - 

Example 1 – How is debt split in divorce

Let's pretend Jack and Jill married in 2015 and are divorcing in 2021. 

They are the parents of two children. Prior to the wedding, Jack took out a loan in 2014 to cover the costs of the wedding, honeymoon, and the family automobile. If those loans are still being paid during the divorce procedures, Jill will almost certainly have to pitch in, given the loans were taken out for joint reasons. If Jack additionally took out a loan in 2009 to buy a cafe, and the café went bankrupt in 2011, before meeting Jill, Jill is less likely to help pay off the loan. If the cafe was still open during the relationship and money from the business was spent on the relationship, it will very certainly be regarded as a joint debt.


Example 2

Jack purchased a home in Brownsville in his own name and obtained a mortgage in his own name.

Jill moved in with Jack three years after he purchased the house. Jack and Jill marry and stay in the house for five years. They then vacate the property, keeping it as an investment property. After ten years, they divorce. In this case, the mortgage is still in Jack's name alone. Because the property is likely to be included in the asset pool to be divided between the parties, the debt will be included as well. The fact that the debt is in Jack's sole name is irrelevant. They both profit from the asset, so they should both share in the debt.

What is wastage in family law?

In family law, a wastage argument asserts that one party has wasted a portion of the asset pool and, as a result, should be exclusively accountable for the debt acquired as a result of that waste. When a person has a gambling issue or is a big spender, this is frequently debated.

When there is a debt split in a divorce, one side will want to avoid being responsible for the obligations of the other. Unfortunately, if one spouse has accumulated debts as a result of problem gambling during the partnership, the court is unlikely to add the debt to the asset pool.


Furthermore, if a person incurs gambling debt after separation but before divorce, the court may view this as "waste" and add the debt's worth back into the asset pool. Debt incurred by a bankrupt business or allowing irrelevant people to obtain and spend from the asset pool are examples of wastage.


Consult a lawyer if you find yourself in a difficult situation and are wondering how debt is distributed in divorce. A lawyer can examine your rights and devise a strategy to defend you and your assets.


  • You can begin by taking the following steps to protect yourself:
  • Having a bank account that is completely in your name and that you can access
  • Keeping any personal belongings that you're worried your ex might claim
  • It is not necessary to resolve property in a courtroom.


In reality, good family lawyers prefer to settle property disputes outside of the courtroom. If you and your former partner's lawyers are unable to reach an agreement, the assets – including debts – will be distributed by a court. If you and your former partner reach an agreement and the court determines that the property settlement is inequitable, the court may refuse to make those orders. Furthermore, if you are dissatisfied with the outcome, you can petition the court for pecuniary orders.

As previously said, each situation is unique, and property settlements can change dramatically from one marriage to the next. Because your situation may differ from those described in this article, the outcome of a property settlement is likely to be different. If you'd like to learn more about property settlements and what you might be entitled to, contact one of the top attorneys.