Debts & Liabilities
Lawyers & Barristers

In ascertaining the value of the property pool available for the division, the court has developed a general approach that the amount the following debts and liabilities will be deducted from the value of the assets:

• a) unsecured liabilities, such as credit card debts, personal loans, unpaid taxes and bills; and
• b) secured liabilities, such as mortgages or car leases

Both joint or individual debts are taken into account and are the values of such items are generally taken as at the date of trial or when an agreement is made.

The court has discretion as to how to deal with debts such as personal loans, credit card debts or unpaid bills or taxes. In some cases, the court can partly or entirely disregard an unsecured liability if it considers there to be sufficient uncertainties as to the amount of the debt or the circumstances of how it has been incurred.

A liability is also likely to be disregarded by the court where one party has incurred a liability in a deliberate or reckless disregard of the other party’s potential entitlement at property settlement. In this case and when a party’s liability is disregarded, the net value of that party’s property is deemed to be greater than his or her true net worth. This will be to that party’s disadvantage at property settlement, particularly if the debt does need to be repaid.

The following examples represent circumstances where the court is likely to either completely disregard a party’s unsecured liability or discount it:

• Where the liability has been unreasonably incurred, as a result of wasteful, reckless or negligent spending;
• Where the liability is too vague and uncertain to be quantified;
• Where the liability is a loan to the party from their parents and is to be repaid only if and when convenient for the party;
• Where the amount of the liability is close to the value of the rest of the property, in the circumstances where the liable party was unaware of the full extent of the liability.

It is quite common for family members to give money to their adult children when they are in a relationship. These funds would assist with buying a property; a car; to renovate a property or to assist with expenses after the birth of a child etc.

After separation, it can often be a argued as to whether the money was a loan or a gift and whether it is to be repaid. As to whether the money should be repaid, some of the things the Court will consider include:

• what was the intention of the person providing the money at the time the money was lent;
• is there any documentary evidence about the intention and basis on which the money was lent. Documentary evidence might include a contract signed at the time of the transaction, emails etc.

If money was lent to the parties, then that loan will be taken into account in calculating the property pool for division between the parties. Usually, the Court will order the adult child who is related to the family member who lent the money be the one who is liable to repay the money to the family member.

If the Court does that, then they usually allow some other asset or cash adjustment to be made to them to take account of the fact that they are assuming sole responsibility for repayment of that loan amount

In relation to unsecured debts, the Court will consider if the party will or may need to repay the liability in question. The Court will also consider that the party who has incurred the liability will be left to pay it back out of whatever funds remain from a property settlement. The effect of such a decision on property settlement may be that the other party will need contribute to the liability by having their fair share in the property reduced.

The Court ordinarily does not have discretion with respect to secured liabilities. The Court must take the property of the parties “as it finds it”, meaning subject to any encumbrances.