How are they dealt with?

Problem

For many reasons there are often long delays between a family separation and final resolution. Circumstances usually change in the interim, sometimes for the better and sometimes not.

The problem lies in the fact that when the Family Court looks at division of property it generally considers the financial situation as at the date of trial, not the date of separation.

So, what if one party runs up debt in the time between separation and trial. How will the Court treat that debt?

Law

Section 79 of the Family Law Act sets out a list of relevant factors for assessing property division between a separating couple (including a directive that the Court considers what is “just and equitable”). The factors are generalised. What the Act does not do is set out a set of rules and regulations providing fixed answers for issues and sub issues that arise in family law cases. Nor does the Act give any guidance on what is just and equitable.

In the case of Af Petersens v Af Petersens (1981) FLC 91-095 the husband had incurred certain debts to his father which, if established, would have resulted in there being no assets for division between the husband and wife. The trial Judge had the following to say:

“Normally this court would distribute amongst the parties the net value of their assets after deduction of all debts. But this is not invariably the case: the court will not normally take account of debts incurred after the separation and on some occasions has ignored debts, although incurred during the marriage, for which it felt one of the parties should bear exclusive responsibility: Antmann v Antmann (1980) FLC 90-908. Needless to say, a debt due does not diminish the property of the parties until it is paid or execution is levied. Nor, as has been pointed out earlier, is there anything in the decision of the High Court in Ascot Investments Pty Ltd v Harper & Harper to suggest that this Court cannot make an order dividing the assets of the parties because such a division might hamper a third party in his or her chances of recovery of a debt.”

No legal authority is cited for the proposition that “the Court will not normally take account of debts incurred after the separation”. In any event normally is not a helpful word in the law because we are left to guess at the exceptions. There is nothing in the Family Law Act which says that post separation debts will be ignored.

Answer

So what is the answer? As for many problems in family law the answer will depend on the facts and the Judge. This is inevitably the position if the Judge is being asked to exercise his or her discretion as to what is “just and equitable”.

The law does not establish a hard and fast rule that debts incurred during the marriage will be treated as debts of the marriage and after separation debts will not. In either case there will be factual issues as to whether the debt is legitimate and payable; whether or not the debt has been reasonably incurred; and whether the debt ought to be shared by the parties to the marriage and if so in what proportion.

Debts incurred after separation are usually incurred by one party alone so, as a matter of probability, it is much more likely that the Court will call on the person incurring the debt to pay it. However, it is easy to imagine plenty of likely exceptions such as borrowing for medical procedures and child expenses, expanding a business and so on.

One piece of advice I always have for clients is get on with the case or the resolution of the dispute. The longer the delay the more likely that events will happen which will complicate your life.