How are debts handled in a property settlement?

Updated 30 October 2026

CM Law’s Ultimate 50 Things You Need to Know About Property Settlement During Divorce #9: How are debts handled in a property settlement?

How are debts divided in a property settlement in NSW?

Debts are assessed alongside assets, contributions and each person’s current and future circumstances to reach a just and equitable property settlement. They are not automatically divided equally or assigned to whoever earns more. The allocation between former partners is separate from the creditor’s rights under the original loan or credit contract.

For married and eligible de facto couples in NSW, the Family Law Act 1975 governs property adjustment. These disputes ordinarily belong in the Federal Circuit and Family Court of Australia.

• Identify what is owed, to whom and by whom.
• Assess how each liability affects the overall settlement.
• Confirm how repayment and any release will actually occur.

Which debts and records should you disclose?

Disclose all relevant liabilities, including disputed debts and obligations that may arise later, such as guarantees. Provide current balances and documents showing the borrower, purpose, security and repayment terms. Disclosure does not mean agreeing that every claimed liability should reduce the property available for division or be shared equally.

The duty of disclosure continues while negotiations or proceedings are underway. Use the Court’s balance sheet to identify agreed figures and disputed amounts, updating statements as balances change.

Check credit-card roles: a primary borrower and additional cardholder are not necessarily joint borrowers. The primary holder is generally responsible for authorised additional-card spending.

How does the court decide who should bear a debt?

The court considers the parties’ existing property interests and liabilities, their contributions and their current and future circumstances. The nature of each liability and how it arose are expressly relevant. An outcome must be just and equitable overall; there is no formula requiring a higher earner to take every debt.

The changes operating from 10 June 2025 expressly address liabilities, relevant economic effects of family violence, and material wastage caused intentionally or recklessly. Transitional rules can matter where a final hearing had already commenced.

Contributions include income, unpaid work and caring for the family. Health, earning capacity and children’s care and housing needs can also matter. A debt incurred in one name may affect the settlement without making the other person a borrower under the credit contract.

What if a debt was hidden or incurred after separation?

A debt is not automatically excluded because it was incurred after separation or without the other partner’s knowledge. Its purpose, amount, timing and surrounding circumstances require examination. Reasonable living expenses, preservation of assets, gambling losses and borrowing obtained through financial abuse may raise different questions, supported by evidence rather than assumptions.

Preserve statements and trace how money was used. Tell your lawyer about forged signatures, pressure to borrow, unexplained redraws or deliberate depletion of assets. Financial abuse may affect both the family-law assessment and available remedies against a lender; alleging it does not automatically cancel the debt.

Legal Aid NSW explains options for restricting mortgage redraws. Obtain advice before changing access where essential payments, safety or existing orders may be affected.

Does money borrowed from parents count as a debt?

Money provided by parents or other relatives must be examined to determine whether it was a genuine loan, a gift or another arrangement. A family member’s demand for repayment after separation is not conclusive. The original understanding, supporting documents, repayment history and whether the obligation will be enforced all matter.

Collect transfer records, messages, any agreement and evidence of repayments. An oral loan may exist, so absence of a signed document is not decisive either. Explain any changed terms or forgiveness of the debt. The Australian Government’s debt guide distinguishes family loans from contributions made through gifts.

What does Moy and Pao show about creditor claims?

In Moy & Pao (No 2) [2025] FedCFamC1A 48, the Full Court found error in leaving an established judgment debt out of the initial financial assessment and considering the creditor’s claim only later. The property orders were set aside, illustrating why significant liabilities must be addressed before provisional settlement percentages are settled.

A company held a judgment against the husband arising from his misappropriation of its funds. It intervened in the spouses’ property proceedings. The trial judge initially omitted the debt, assessed the spouses’ shares, then adjusted those shares to accommodate the creditor.

The appeal and cross-appeal were allowed by consent and the matter returned for rehearing. The Full Court did not determine a final replacement division.

The judgment predates the June 2025 reforms. It supports proper identification and assessment of creditor claims, rather than a rule that every debt must always be deducted or equally shared.

Can a lender still pursue you after your partner agrees to pay?

Yes, a lender may still pursue you if you remain liable under the credit contract. An agreement or order between former partners requiring one person to pay usually does not release the other borrower. Joint and several liability can expose either borrower to the whole outstanding balance, subject to the contract and available defences.

An indemnity may let you seek reimbursement from your former partner, but does not itself stop the lender seeking payment. Recovery may be difficult if your former partner cannot pay.

Obtain a written lender release, effective refinancing or advice about an order specifically binding the creditor. The Act permits some third-party orders, subject to safeguards including procedural fairness and protection against foreseeable non-payment. Moving out or transferring title alone does not end the loan.

What should happen to the mortgage if one person keeps the home?

The proposed owner needs a realistic way to fund any payout and service the mortgage, together with an effective release of the departing borrower. A promise to refinance is not lender approval. Settlement terms should identify deadlines, interim repayments and what happens if refinancing is refused or cannot be completed.

Check current payout figures, fees and borrowing capacity before committing. Coordinate the property transfer, loan discharge and replacement finance. A fallback may require sale provisions addressing costs and any shortfall.

If repayments become unaffordable meanwhile, contact the lender’s hardship team promptly and seek financial counselling. Requesting assistance does not itself change the payments due. Keep written confirmation of any agreed arrangement.

How should business debts, tax and insolvency be handled?

Business liabilities, tax debts and guarantees need separate examination because the legal debtor may be a company, an individual or both under different obligations. If debts outweigh available assets, dividing property does not make creditors disappear. Obtain coordinated family-law, accounting and insolvency advice before agreeing to transfers or assuming debts are extinguished.

Check whether business liabilities are already reflected in a valuation before subtracting them again. Distinguish existing tax debts from possible tax consequences of a proposed sale or transfer; obtain advice about whether and how those consequences affect settlement.

Bankruptcy can involve a trustee controlling relevant property and participating in family-law proceedings. Do not assume spouses can agree between themselves to transfer assets beyond creditors’ reach.

How do you finalise a workable debt settlement?

Finalise debt arrangements only after checking disclosure, balances, repayment feasibility and the steps required to implement the outcome. Record who must pay, obtain approvals, refinance or sell, with deadlines and consequences for non-compliance. Have each party obtain legal advice about formalising the agreement and confirm that required releases actually take effect.

Consent orders and compliant financial agreements are different formal options. Financial agreements require independent legal advice for each party; an informal written promise is not an equivalent substitute.

Check filing deadlines: generally twelve months after divorce takes effect or two years after de facto separation. Late applications need advice; negotiations do not stop time running.

Contact Christine Manolakos and CM Lawyers to review the proposed property settlement, outstanding liabilities and creditor exposure before signing.

General information for separating couples in NSW, not individual legal advice. Have a lawyer check the debts, creditor rights and proposed settlement documents against your circumstances.

Key resources

• Family Law Act 1975 and June 2025 property-law changes — liabilities, contributions and current settlement principles.

• Federal Circuit and Family Court: Property overview — jurisdiction, assessment and application deadlines.

• Duty of disclosure and balance sheet — financial information, supporting documents and disputed figures.

• Separating with debt: A guide to your legal options — family loans, creditor rights, indemnities and practical settlement terms.

• Legal Aid NSW: Dividing your property — mortgages, redraws, credit facilities and urgent financial issues.

• Moneysmart: Separation checklist, relationships and money and financial hardship — records, borrower roles and repayment assistance.

• Moy & Pao (No 2) [2025] FedCFamC1A 48 — judgment on proper assessment of a creditor’s claim.

• Federal Circuit and Family Court: Bankruptcy — interaction between insolvency and property proceedings.

• Financial consent orders and financial agreements — different ways to formalise an agreed settlement.