Updated 1 November 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?
Debts are assessed alongside assets when determining a just and equitable property settlement after separation. They are not automatically divided equally, and an arrangement between former partners does not automatically change a creditor’s rights. The outcome depends on the liabilities, contributions, current and future circumstances, and the evidence supporting the proposed division.
NSW family property proceedings ordinarily go to the Federal Circuit and Family Court of Australia under the Family Law Act 1975. The June 2025 reforms expressly address the nature and circumstances of liabilities, relevant economic effects of family violence, and intentional or reckless material wastage. Older proceedings may require advice about transitional provisions.
Which debts should be identified before negotiating?
Identify all relevant liabilities, including mortgages, personal loans, credit cards, buy now pay later accounts, unpaid tax, business obligations and family loans. Record who legally owes each amount, its current balance and any security. Disputed or contingent liabilities should be disclosed and assessed rather than simply omitted from the financial picture.
| Debt | Records to obtain | Issue to resolve |
|---|---|---|
| Mortgage or car finance | Loan contract, security and current payout figure. | Who owes the lender, what secures repayment and whether refinancing is feasible. |
| Credit cards and buy now pay later | Account terms, account holder details and transaction history. | Who is contractually liable and what the spending funded. |
| Tax, business debts and guarantees | Assessments, accounts, loan agreements and signed guarantees. | Whether the debt is personal, belongs to an entity or involves contingent liability. |
Legal Aid NSW’s guide to property and debts explains the distinction between secured and unsecured borrowing. A guarantee needs separate attention even if no payment has yet been demanded.
Does the name on a loan determine who bears the debt?
The borrower’s identity matters to the creditor, but it does not alone determine how a liability is treated between former partners. A debt in one person’s name may have funded family expenses. Conversely, the fact that borrowing occurred during the relationship does not require its burden to be shared equally.
Check the contract before assuming that two people who used a credit card are joint borrowers. An additional cardholder may not have the same contractual liability as the account holder. Legal Aid NSW’s separation guidance discusses cancelling additional cards and protecting account access.
Will an agreement release me from a joint mortgage?
A private agreement that your former partner will pay a joint mortgage does not itself release you from the loan. Joint borrowers generally remain liable for the whole balance until the debt is discharged or the lender releases them. Moving out or transferring ownership does not automatically remove that liability.
An indemnity may require your former partner to reimburse you, but it does not itself prevent lender recovery and may offer little practical protection if they cannot pay. Obtain written confirmation of refinancing and release. Include a sale fallback if finance fails. Legal Aid NSW’s mortgage guidance explains the continuing risks; particular court orders affecting creditors require separate legal analysis.
How are business loans and guarantees treated?
Business borrowing requires examination of the business structure, the borrower, any security and the purpose of the funds. A sole trader’s debts are personal, while a company ordinarily owes its own debts. Personal guarantees or other statutory liabilities can expose an individual even where the business operates through a company.
A business debt is not automatically excluded because only one partner operated the business. Consider its connection to family income and the surrounding circumstances. Ask the accountant and lawyer to check whether liabilities are already reflected in the business valuation, so the same debt is not deducted twice.
Are loans from parents automatically deducted?
Money advanced by relatives requires evidence of whether it was a genuine loan, a gift or another arrangement. A document labelled as a loan is relevant but does not settle every issue. The terms, intention, repayment history, enforceability and surrounding conduct may affect how the alleged liability is treated.
Provide the original agreement, bank transfers, messages and repayment records. Identify the actual borrower and lender. Do not retrospectively describe a gift as a loan to reduce the available property. A family lender’s rights may require separate advice or participation in proceedings.
What about debts incurred after separation or through gambling?
Debts incurred after separation are not automatically excluded from a property settlement. The court examines their nature and circumstances, including whether they funded ordinary living costs, children’s needs or preservation of an asset. Gambling losses or other spending may raise different issues where there is evidence of intentional or reckless material wastage.
Keep a timeline showing when money was borrowed, where it went and who made repayments. An unsuccessful investment is not necessarily reckless wastage. The evidence must support the proposed treatment; avoid assuming every disputed expense will be added back dollar for dollar.
How can financial abuse affect responsibility for debt?
Pressure to sign loans, misuse of accounts or control over spending may involve financial abuse. Relevant economic effects of family violence can affect the property settlement assessment. They may also require separate consumer credit advice about the debt itself. Family law adjustments do not automatically cancel a creditor’s contractual rights.
Tell your lawyer privately about coercion, forged signatures or accounts you did not authorise. Preserve records safely and contact the lender’s specialist support team where appropriate. The government’s Separating with debt guide explains options involving both family law and consumer credit law.
What financial records should each person disclose?
Both parties must provide full and frank disclosure of relevant financial information, including liabilities held individually or jointly. Disclosure is ongoing, so balances and developments must be updated as the matter progresses. Documents should establish the debt’s existence, amount, purpose and repayment terms, rather than merely repeat an unsupported figure.
- Obtain current statements and payout figures, including arrears, interest and fees.
- Provide loan contracts, guarantees, tax assessments and relevant business records.
- Identify disputed amounts and explain the reason for disagreement.
- Keep evidence of repayments and significant transfers after separation.
Legal Aid NSW’s disclosure guidance explains the obligation. Failure to disclose can affect the proceedings and lead to costs or other orders.
What does Tomaras show about transferring a tax debt?
In Commissioner of Taxation v Tomaras [2018] HCA 62, the High Court confirmed that family law legislation permits an order substituting one spouse for the other as debtor to the Commissioner of Taxation. Strict conditions apply. The High Court did not itself transfer the wife’s tax debt to her husband.
The proposed order must appropriately implement the property division, satisfy the statutory safeguard against foreseeable non-payment in full, and be just and equitable. The creditor must receive procedural fairness. The husband’s bankruptcy presented a serious obstacle on the facts. The decision establishes a conditional power, not a general entitlement to transfer an inconvenient debt to a former spouse.
What if repayments are unaffordable or bankruptcy is involved?
Contact the lender promptly if repayments are becoming unaffordable and seek financial counselling alongside legal advice. A property dispute does not pause interest, default action or contractual deadlines. Bankruptcy requires specialist attention because it can affect control of assets, creditor recovery and who must participate in the family law proceedings.
Ask about hardship assistance and obtain written confirmation of any arrangement. Do not assume a settlement can place assets beyond creditors’ reach. The court’s bankruptcy guidance explains the trustee’s role and the need to address competing rights. Neither the non-bankrupt partner nor creditors automatically have priority over the other.
How should the debt arrangements be formalised?
Record the agreed treatment of each debt within properly prepared consent orders or a binding financial agreement, as appropriate. Specify payment amounts, deadlines, refinancing requirements and what happens if implementation fails. Any release needed from a lender must be addressed separately; vague wording that one person takes responsibility can leave serious gaps.
Consent orders and financial agreements have different legal requirements. Binding financial agreements require prescribed independent legal advice. Check proposed orders against lender requirements before signing, and retain evidence of payouts, account closures and releases. Ensure payment obligations remain workable after ordinary living expenses.
What deadlines and next steps should I consider?
Married parties generally have 12 months after divorce takes effect to apply for property orders; eligible de facto partners generally have two years after separation. Late applications ordinarily require permission, which is not guaranteed. Married parties can resolve property before divorce, and creditor deadlines may require action much earlier.
Check the court’s eligibility and time-limit guidance. Gather the debt records before negotiating percentages or accepting a buyout. Christine Manolakos at CM Lawyers can advise on the proposed allocation and the documents needed to implement it.
General information only, current at 1 November 2026. Have a lawyer check your circumstances, debt obligations and proposed settlement before acting.
Key resources
Family Law Act 1975 — property adjustment, disclosure and powers affecting third parties.
Attorney-General’s Department: June 2025 reforms — liabilities, wastage and the economic effects of family violence.
Separating with debt: a guide to your legal options — family law and consumer credit options after separation.
FCFCOA: financial and property overview — settlement principles, eligibility and time limits.
Legal Aid NSW: mortgage problems after separation — joint liability, lender recovery and hardship options.
Legal Aid NSW: financial disclosure — records and ongoing disclosure obligations.
FCFCOA: formalising an agreement — consent orders and financial agreements.
FCFCOA: bankruptcy in family law — trustees, creditors and competing property rights.
Commissioner of Taxation v Tomaras [2018] HCA 62 — High Court judgment on changing responsibility for a tax debt.
CM Lawyers — Property settlements — advice on dividing property, debts and superannuation after separation.
