- It was incurred in both parties’ names;
- It was incurred in the course of a common enterprise;
- The debt was incurred to acquire, improve or maintain a relationship property asset;
- The debt was incurred to manage the affairs of the household;
- The debt was incurred for the purpose of bringing up a child of the relationship.
A debt will be a “separate debt” if it does not fall into any of the categories above.
It is important to be aware that a debt can be a relationship debt even if it is in one party’s name and the other party had no knowledge of its existence.
Scenarios
During their relationship, one partner repeatedly uses a joint credit card for dining out with her friends, and at the time of separation $6000 is owing.
The credit card debt is in the parties’ joint names and is therefore a relationship debt to be shared equally.
Although there is a provision in the legislation to capture cases where there has been misconduct by one party and this has impacted the relationship property pool, the misconduct needs to be severe and have significantly impacted the relationship property pool to trigger this provision.
This partner’s lavish dinners would likely fall short of this.
During their relationship, one partner takes out a car finance loan to purchase an Audi.
The other partner was not aware that the vehicle was purchased on finance and would not have agreed to the purchase had they known. At the time of separation, the vehicle is worth less than the value of the loan.
Motor vehicles are generally classified as family chattels (and therefore a relationship property asset).
Any debt incurred to acquire a relationship property asset is a relationship debt for which both parties will need to bear equal responsibility.
The circumstances pose some injustice.
This could have been avoided with a valid contracting out agreement. A contracting out agreement could include a provision that only debts incurred in both parties’ names will be classified as relationship debts.
One partner has an investment property that they purchased prior to the relationship. This property is mortgaged. During the relationship the mortgage repayments were paid from both parties’ salaries.
Assuming all factors point towards the investment property being separate property, the mortgage too will be separate debt.
However, the other partner should get some recompense: the court can order the payment of money as compensation or could allocate them an increased share of relationship property.
You will need to provide evidence, such as bank statements, to show how the mortgage repayments were met.
But even if the mortgage repayments were only met by the partner who owns the investment property, this too would trigger an entitlement to compensation for the other partner, as income earned by either party during the relationship is relationship property.
The other partner may also be entitled to share in any increase in the value of the investment property.
During a relationship, one partner takes out a student loan to complete a certificate in hairdressing.
That partner also borrows the additional “living costs” as part of the student loan and the couple spend this money on a trip to Thailand.
The student loan for the course fees for the certificate in hairdressing would likely be classified as separate debt, unless that partner could satisfy the judge that the loan was incurred for the benefit of both parties and/or the household.
For example, if the partner subsequently established a hairdressing business (a relationship property asset) then this would support the argument that the course fees should be treated as a relationship debt.
Given that the “living costs” portion of the loan was incurred for the benefit of both partners this portion would be relationship debt.
- Jeremy Sutton is a barrister and family lawyer at Bastion Chambers.
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