It Depends – Does it matter if the family debt is all in my name?

In this edition of ‘It depends’, special counsel Craig Turvey talks about family law debt and whether it matters that it’s in your name rather than your spouse’s.

VIDEO TRANSCRIPT

Welcome to this week’s edition of It Depends. Today we’ll be talking about family law debt – does it matter if it’s in your name?

What is family law debt?

Family lawyers often refer to it jokingly as sexually transmitted debt. So, debt that’s accumulated during the marriage or de facto relationship. It can be in parties individual names, or it can be in joint names or in the name of a company, for example that the parties are directors and shareholders of. But it’s debt that’s accumulated during the time of the relationship and it has to be divided up in some way as part of the alteration of assets. So, that’s all theoretical from a family law perspective. It may not matter whose name the debt is in because it’s going to be ultimately considered in your property settlement. However, in a practical way for people, it does matter whose name the debt is in.

Does it matter?

As you may expect the answer is it depends. If it’s a mortgage, for example, that might be in joint names you might rely on both incomes coming in from the parties to pay for the mortgage repayments. And if one person just says, Nope, not paying any more can’t afford to do it or I’m not doing it, then that creates a practical problem. In family law world, as part of your separation, sure, it’s easy for lawyers to say, yes, the debt will be factored in, and it will be treated as part of your property settlement. But for you, practically, if you’ve got a spouse who’s not contributing to a joint debt there are practical problems. The bank doesn’t care about your separation. The bank just wants the repayments met. So, if you fall into arrears in terms of mortgages, credit card repayments, loans, all of those types of things, then there are practical consequences for people. It might affect your credit rating. That might be a problem if you’re looking to retain in the form of matrimonial home in the settlement. But your credit rating has been destroyed because of the behaviour post separation, or if you’re looking to purchase a property down the track with money you get from your property settlement and your credit rating is affected. That, of course, may also be an issue.

When does it not matter?

Sometimes it doesn’t matter. It might be, for example, there’s a loan to a family member. There may be no compulsory repayments because it’s a family debt. They’re not actively chasing it up in the same way a third-party creditor would, so they accept that they’ll be repaid at the end of a property settlement and they’re happy with that. So, it doesn’t really matter whose name the debt is in because there’s no immediate need to repay it. There’s other types of debts, of course, might be third parties who you’re in a close business relationship level with. And so they’re not going to actively pursue you or the business for money because you have an ongoing relationship with them. So, in that case, it may not matter whose name the debt is in either or if you’re involved in court proceedings, the court can make orders in terms of who’s to repay certain debt or who’s to be responsible for certain debts and people can seek orders about that. So, if you’re in the court system, the court can deal with that. So, again, it may not matter whose name the debt is in, but ultimately there are practical consequences for people. You need to think about them. It’s not enough to just say, well, we’ve accumulated this debt, it’s in your name. I don’t need to worry about that. You may have provided a guarantee, for example, that you’re not aware of during the marriage or the debt might be in your name, then that might be a practical problem for you if the other spouse doesn’t contribute to repayments. So, you need to think about all of these things.

Should I seek legal advice?

If you’re separating, you should always seek legal advice about what your property settlement entitlements are and how that might affect you, not only from a practical family law perspective, but how it’s going to work for you moving forward in terms of the repayments of debts and those types of interim things that people often don’t worry about at the time, but which they obviously have to deal with. So, if you have any questions about those types of issues, please contact me or one of the other family lawyers at Cooper Grace Ward.