Debts in a Family Law Property Settlement: Who Is Responsible for What?

In a family law property settlement, debts are treated as part of the overall asset pool, not as a separate issue. Responsibility isn’t decided simply by whose name is on the debt. Courts look at who incurred it, why, whether it benefited the relationship, and when it was incurred relative to separation.

Key takeaways

• Debts are divided as part of the whole property pool, alongside assets, not separately.
• Whose name a debt is in is a starting point, not the deciding factor.
• Joint debts remain the legal responsibility of both parties until formally refinanced or released, regardless of informal agreements.
• Debts run up after separation, or without the other party’s knowledge, attract closer scrutiny and may be treated as wastage.

When people picture a property settlement, they think about what’s being divided: the house, superannuation, savings, maybe a business. Debts get far less attention, but they are just as much a part of the pool as the assets and getting them wrong can leave one party carrying a burden they never agreed to.

Below, we explain how debts are treated in a family law property settlement in NSW, who tends to end up responsible for what, and where separating parties commonly get caught out.

Debts Are Part of the Property Pool

A property settlement doesn’t just divide assets. It divides net wealth: the assets less the liabilities. Whether a debt sits in one name, both names, or technically belongs to a company or trust, it’s generally weighed alongside the assets under the Family Law Act 1975. A settlement isn’t complete, or fair, until the debts have been properly identified, valued, and accounted for.

Whose Name the Debt Is In Is Not the End of the Story

It’s a common assumption that a debt automatically belongs to the person named on it. That’s a starting point, but not the determinative factor. The Federal Circuit and Family Court of Australia also looks at:

• Who incurred the debt, and why. A joint mortgage on the family home is treated very differently to one party’s personal credit card debt run up on gambling.
• Whether the debt benefited the relationship or family, or only one party. Debt spent on shared expenses carries different weight to debt spent for one party’s sole benefit.
• Whether the other party knew about or agreed to the debt. Debts incurred without the other party’s knowledge are scrutinised more closely.
• Timing relative to separation. Debt incurred after separation, particularly without the other party’s knowledge, gets scrutinised more closely.
• Whether the debt was reckless or wasteful. Sometimes called “wastage,” this refers to debt designed to shrink what is available to divide.

Common Types of Debt in a Property Settlement

Mortgages and Secured Property Debt

Usually the most straightforward. The debt is tied to a specific asset and is generally offset against that asset’s value, or transferred along with the property to whoever retains it.

Credit Cards and Personal Loans

These need closer scrutiny. Was the money spent on family expenses, or on one party’s own spending unrelated to the relationship? Timing matters.

Business Debts

Where a business sits in the asset pool, the business debts are usually assessed as part of the overall valuation rather than as a standalone personal liability, though personal guarantees may complicate this.

Tax Debts

Especially relevant for self-employed parties or business owners. These can be significant and sometimes only become clear once financial disclosure is complete.

Debts to Family Members

Loans from parents are a frequent dispute, particularly with little documentation. Courts look at whether the arrangement has the real features of a loan (an expectation of repayment, some record or repayment history) or whether it is more likely a gift.

Pitfalls to Watch For

Assuming a debt is automatically yours (or automatically shared). A debt in your name alone isn’t automatically yours to keep, and a joint debt doesn’t automatically split evenly.

Failing to disclose debts. This is a breach of the disclosure duty, just as failing to disclose assets is.

Running up new debt during or after separation without discussing it. This can raise questions about wastage.

Missing contingent liabilities. Guarantees for a business or family member that haven’t been called on yet, but could be in future, are easy to overlook.

Leaving joint debts unresolved after separation. Both parties often remain legally liable to the lender until it’s refinanced or formally released, even if you’ve informally agreed who pays.

Not accounting for debts attached to an asset. Undisclosed liabilities tied to a business, for example, can change the real value of what is being divided.

Why This Deserves Early Attention

Debts can be as complex, and as capable of derailing a settlement, as assets. A complete picture, built through the same disclosure process used for assets, allows for a settlement based on a true net position rather than what is visible on the surface. Parties who deal with debts early, rather than as an afterthought, tend to reach settlements that are fairer and more durable.

How We Can Help

As an accredited specialist in family law based in Sydney, Maggie Faddoul and the team at Ramsden Family Law can help you identify which debts are genuinely relevant to the property pool, gather the right evidence to support your position, and negotiate an outcome that reflects each party’s true contribution and capacity to pay. Where debts are disputed or unclear, we can advise on the arguments available to exclude or reduce your liability for it.

If you’re navigating debt as part of your separation, our property settlement team can guide you through the process and help you reach a settlement that’s fair, practical, and legally sound.

Contact us today to arrange a confidential discussion about your matter.

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