How Are Debts and Liabilities Divided in a Divorce?

When a relationship ends, most attention goes to who keeps which assets. Debts matter just as much. Many couples build up mortgages, personal loans, credit cards, car loans and other liabilities while they are together, and how these are handled can shape your finances for years. This article explains, in plain terms, how debts are treated in an Australian property settlement, including the changes to the Family Law Act 1975 that took effect on 10 June 2025.

This is general information only, not personal legal or financial advice.

Debts are part of one picture, not split 50/50

In a property settlement, the court does not look at assets and debts separately. It identifies everything the parties own and everything they owe, then works out an outcome that is just and equitable in the circumstances. Liabilities reduce the net pool available to share, so the way a debt is characterised can have a real effect on each person's final position.

There is no automatic 50/50 split, for assets or for debts. The outcome depends on the facts of your relationship.

The framework the court follows

Since 10 June 2025, the decision-making framework that courts use for property matters is set out directly in the Family Law Act 1975 (in section 79 for married couples and section 90SM for de facto couples). It had previously developed through case law. Putting it in the Act was intended to make the process clearer, particularly for people without a lawyer.

In broad terms, the court:

• identifies all of the property and liabilities (debts) of the parties
• assesses each person's contributions to the property pool and to the welfare of the family
• assesses each person's current and future circumstances
• decides what order, if any, is just and equitable

Debts sit inside this whole process. They are identified at the first step, and the reasons behind them can be weighed at later steps.

What the court considers about a debt

The 2025 amendments made the treatment of liabilities an express consideration. When the parties have incurred liabilities, the court can take into account the nature of those liabilities, the circumstances in which they arose, and the impact they will have on each person's financial future.

In practice, a few questions tend to matter most.

Who incurred the debt, and who benefited

If a debt is in both names, both people are legally liable to the lender for the full amount, regardless of who spent the money. Within a property settlement, though, the court can look at the purpose of the debt. A mortgage on the family home or a loan for a shared renovation usually benefited the household. A loan one person took for a purely personal purpose may be weighed differently.

Whether the debt benefited the family

Debts that supported the family, such as the home loan, a family car loan or everyday living costs, are generally treated as shared. A debt that benefited only one person, or a venture that did not involve the other party, may be characterised as that person's responsibility.

Wastage of money or property

The 2025 changes also gave the court an express power to consider where a party has intentionally or recklessly caused material wastage of property or financial resources. This replaces the older practice of notionally adding back money that one party had spent. The court no longer adds a spent amount back into the pool as if it still existed. Instead, it can take the effect of that wastage into account when assessing each person's current and future circumstances. Examples can include gambling away savings or deliberately running up debt.

The economic effect of family violence

Another change from 10 June 2025 allows the court to consider the economic effect of family violence that a party was subjected or exposed to, when assessing contributions and current and future circumstances. This can be relevant where violence affected a person's ability to earn, to contribute, or to manage shared finances and debt.

How common debts are usually handled

The home mortgage

The mortgage is often the largest liability. Frequently the home is sold and the loan is paid out from the proceeds, with the balance divided. If one person keeps the home, they usually take over the loan, and the settlement is adjusted to reflect that. A mortgage being in one name does not, by itself, decide who carries it in the settlement, although the lender can still pursue whoever signed the loan.

Credit cards

Credit card debt is commonly looked at by reference to who incurred it and who benefited. Joint cards make both people liable to the provider. After settlement it is sensible to close joint accounts and separate cards held in your name, because an agreement between you and your former partner does not bind the bank.

Personal loans

Personal loans are usually approached like credit cards. The court can consider what the loan was for and who benefited. A loan for shared purposes is more likely to be treated as joint than a loan for one person's sole benefit.

Car loans

Where a vehicle was used by the family, the loan is generally treated as shared. If one person keeps the car, they usually take on the loan and the settlement is adjusted. If the loan is larger than the car is worth, that shortfall is accounted for in the figures.

Tax debts

Tax debts are treated as liabilities, but they can be less straightforward. Where both people benefited from the income behind the debt, it may be shared. A tax debt tied to one person's undisclosed activity may be treated as theirs. Tax can have its own consequences, so it is worth getting advice on these.

Buy now, pay later and informal debts

Buy now, pay later balances are debts and should be disclosed and dealt with like any other. Money borrowed from family during the relationship should also be disclosed, even where the arrangement was informal, because it can affect the pool.

Disclosure is now a duty written into the Act

Full and frank financial disclosure has always been central to property settlements. Since 10 June 2025 this duty sits directly in the Family Law Act (section 71B for married couples and section 90RI for de facto couples). Each party must disclose information relevant to the issues in the case. The duty is ongoing, starts before any court application, and continues until the matter is finalised. It covers your total direct and indirect financial circumstances, including income, property and other financial resources, and certain disposals of property.

To understand the full picture, it can help to:

• exchange recent bank, loan and credit card statements
• obtain a credit report for each party
• ask about any guarantees, co-signed loans or money owed to family

If a settlement was reached and one party later discovers the other failed to disclose debts or assets, it may be possible to apply to the court to set the orders aside under section 79A, on grounds that can include suppression of relevant information. This is not guaranteed, and it is far better to uncover everything before settling.

Putting debt responsibility in writing

To make a property settlement legally binding, couples generally either apply for consent orders or enter a binding financial agreement. Whichever path you take, the document should state clearly who is responsible for each debt rather than using vague wording. Where possible, debts are best refinanced into the responsible person's name or paid out at settlement, so that future liability matches the agreement.

Remember that an agreement between former partners does not change your contract with a lender. If a debt stays in your name, the lender can still pursue you, so transferring or closing joint accounts protects you in practice. Consent orders can be enforced through the court if a former partner does not meet an obligation.

After settlement

Once things are finalised, it is worth:

• refinancing joint debts into the responsible person's name
• asking to be released as a guarantor where you are not the responsible party
• closing joint cards and accounts
• keeping a copy of your orders or agreement
• monitoring your credit file

A clearer view of where you stand

Debt division can feel daunting, especially when the numbers are large or you and your former partner see things differently. Getting the liabilities and their treatment clear is often the first step to feeling settled.

You can use Separately to model different scenarios and see how various ways of dividing debts and assets affect your overall position. Separately gives you an assessment to help you understand your situation. For a formal, binding outcome, whether consent orders or a binding financial agreement, you should get independent legal advice.