Handling Joint Debts During Separation

Updated 30 October 2026

CM Law's Ultimate 50 List - Separated Couples FAQ #10: How to handle joint debts during separation?

How should you handle joint debts during separation?

Identify each debt, check who is legally liable, contact lenders and make workable interim repayment arrangements while obtaining advice about the final settlement. Separation does not automatically divide a loan in half or release either borrower. A property settlement between former partners must be distinguished from obligations owed to a lender.

Start with a schedule recording the creditor, borrowers, balance, interest rate, minimum payment, arrears and any security. Include mortgages, personal loans, vehicle finance, credit cards and guarantees. Identify disputed transactions rather than assuming every household debt is jointly owed.

Obtain contracts and current statements.
Address imminent repayments and any enforcement notices.
Record temporary arrangements and review dates in writing.

Ask a family lawyer to assess the overall position. For spouses and eligible de facto couples in NSW, property settlement is governed by federal family law.

Are you responsible for half the debt or the whole amount?

Where a loan imposes joint and several liability, either borrower can be pursued for the outstanding balance, not merely half. Your contract and any available legal defences matter. Being married, using an additional card or guaranteeing a loan creates different questions, so confirm your actual role before deciding what you owe.

Your role	Possible liability to the lender	What to check
Joint borrower	You may be liable for the full outstanding balance.	Loan terms, co-borrowers and any agreed release.
Sole borrower	You generally remain liable under your contract.	The signed agreement and any disputed borrowing.
Additional cardholder	The primary holder is generally responsible for authorised spending.	Who is the borrower and who only has card authority.
Guarantor	You may have to pay if the guarantee conditions are met.	The guarantee’s scope, limits and any secured property.

Moneysmart explains shared borrowing and cardholder roles. Being married alone does not make you liable for your partner’s sole loan. Any guarantee requires separate review and does not automatically end on separation.

Should you close joint accounts or stop further borrowing?

Review access to joint accounts and credit facilities promptly, but do not assume every account should be closed immediately. Ask the lender about restricting redraws, further borrowing or additional-card use. Check essential payments, incoming funds, account terms and existing orders before making changes that could disrupt housing or household expenses.

Legal Aid NSW suggests discussing restrictions on mortgage redraws, including requiring both borrowers’ approval. Ask the lender what controls are available and obtain written confirmation of any change.

Save statements first. Review direct debits, linked digital wallets and banking access. Closing or cancelling a facility does not erase an existing balance, and a unilateral instruction may not achieve the restriction you expect.

If there is a risk of unauthorised borrowing, financial control or asset depletion, tell your solicitor promptly. Do not empty accounts or stop essential payments simply to gain negotiating pressure.

What if you cannot afford the repayments?

Contact the lender’s hardship team as soon as repayments become unaffordable and explain the changed circumstances. Ask about an affordable arrangement, how interest and fees will be handled, and what happens when temporary assistance ends. A request for help does not itself change the payments due; confirm any agreed variation.

Financial hardship assistance may involve adjusted payments or a temporary arrangement. The lender must consider qualifying consumer-credit hardship requests, but need not accept the exact proposal made. Provide accurate income and expense information, and keep copies of correspondence.

The OAIC explains that a credit reporting body cannot use financial hardship information to calculate your credit score. An arrangement may still appear on your credit report; repayment history and defaults are separate matters. Do not assume hardship assistance guarantees future credit approval.

A free financial counsellor can help assess a budget and communicate with creditors. Obtain urgent advice about default notices, repossession threats or court documents.

How does the court decide who should bear the debts?

The court considers property rights and liabilities, contributions, and each party’s current and future circumstances before making a just and equitable adjustment. It does not simply divide every debt equally or allocate a fixed percentage to the higher earner. The debt’s purpose, circumstances and effect on the overall settlement matter.

Under the property framework clarified from 10 June 2025, liabilities are expressly relevant. Financial and non-financial contributions, care of children, earning capacity and housing needs may all affect the outcome.

Tell your solicitor if borrowing involved pressure, forged signatures or financial abuse. Where relevant, family violence’s effect on contributions and its economic effect are considered. Whether a lender can enforce a particular contract may also require separate credit-law advice.

Debt incurred in one name may still be relevant to property settlement, while a jointly signed loan may remain enforceable against both borrowers despite their different contributions.

Does an agreement that your former partner will pay protect you?

An agreement between former partners generally does not release a borrower from the lender’s contract. Even an order requiring your former partner to pay and indemnify you may leave the creditor able to pursue you. Check whether the proposed outcome includes an effective lender release, refinancing or a properly made order binding the creditor.

An indemnity may give you a claim against your former partner if you suffer a covered loss. It does not necessarily prevent the lender seeking payment, and recovering money from your former partner may be difficult.

The Australian Government’s debt guide explains why repayment responsibility and creditor rights must be addressed separately. Ask your lawyer to identify who must obtain approvals, what must happen at settlement, and the consequences if those steps fail.

Moving out or transferring ownership of the home does not, by itself, remove your name from the mortgage loan.

Is refinancing or consolidating debts the right solution?

Refinancing may allow one person to take over borrowing, but it depends on lender approval and affordability. Consolidation is not automatically cheaper or safer. Compare the total interest, fees, term and security of the proposed loan, and confirm that the existing joint liability will actually be discharged or released.

Moneysmart’s refinancing guidance warns that lower monthly repayments can conceal a longer term and higher total cost. Moving unsecured credit-card debt into a mortgage can also put the home at risk if repayments fail.

Ask for written confirmation of approval and coordinate any property transfer, payout and release. A promise to refinance later can leave the departing partner exposed.

Settlement documents should address what happens if approval is refused or a deadline is missed. Depending on the circumstances, that may require a different payment arrangement or sale provisions.

Can a court make an order changing a creditor’s rights?

The Family Law Act provides powers to make certain orders binding creditors, but those powers have statutory safeguards. A proposed transfer of debt must satisfy the relevant requirements, including procedural fairness and a just and equitable outcome. Ordinary agreements between spouses do not automatically have this effect on the lender.

In Commissioner of Taxation v Tomaras [2018] HCA 62, the wife sought to substitute her husband as debtor for her tax liabilities. Her husband had been declared bankrupt. The High Court confirmed that section 90AE could empower a court to make an order binding the Commissioner.

The High Court did not itself transfer the debt. It emphasised conditions governing the power, including protection against foreseeable non-payment and the requirement for a just and equitable order.

This concerned one spouse’s tax debt, not a joint mortgage. It demonstrates the distinction between statutory power and entitlement to a particular order. Any current application must meet today’s legislative requirements.

What should you check before finalising a debt settlement?

Before finalising, verify current balances, repayment arrangements, lender approvals, releases and the steps needed to implement the agreement. Include a practical response if refinancing or repayment fails. Have a lawyer check the documents, and retain evidence that required discharges and transfers actually occurred rather than assuming signatures completed the process.

Keep financial disclosure updated. Identify disputed debts, guarantees and any money owed to you, as well as liabilities you owe. Property settlement mediation may help resolve remaining issues where suitable and safe.

Consent orders and compliant financial agreements provide different formal settlement options. Financial agreements require independent legal advice for each party. Neither should be assumed to release a lender’s rights automatically.

Check filing deadlines promptly: generally twelve months after divorce takes effect or two years after de facto separation, with exceptions requiring advice. Negotiations do not stop these periods running.

Contact Christine Manolakos and CM Lawyers for advice about your property settlement, creditor exposure and the documents needed to implement an agreed outcome.

General information for people separating in NSW, not individual legal advice. Have any proposed agreement or legal action checked by a lawyer against your circumstances.