Rarely in the context of family law do I like to offer or give relationship advice, which for the most part is generally unhelpful. Statistically speaking, at least one in two marriages are likely to break down, as will countless numbers of de facto relationships. Australia operates in a no fault system and the reality is that relationships come to an end all of the time for a myriad of reasons.
In a recent online article I was reading it was talking about the relatively new phenomenon of “sexually transmitted debt” as a form of economic abuse. Click bait to one side, the article was talking about an increasing phenomenon whereby persons who are ending, or in the process of trying to end, a relationship felt that they were unable to do so because of the financial circumstances that they faced. One of the key examples listed was where assets had been purchased in the name of one party but, for various reasons, the debt associated with that purchase had been placed in the name of the other. When it came time to separate, that impact of a poor credit rating or the inability to pay back money that had been borrowed by the other party was used as a way of controlling the person so that they remained in the relationship to ensure that the bills kept on getting paid.
Sadly, in my experience of family law matters, I have to agree that at least anecdotally it is an increasing phenomenon. Certainly, in relationships between people in their early 20s and 30s, it seems increasingly common to see finance associated with a large number of acquisitions, including cars, overseas holidays, and the like. It is extraordinary to pick up the balance sheet of people who have been in the workforce for some 10 – 15 years that have an exceedingly large amount of debt, and no assets to show for that debt. How the debts came to be placed in one person’s name when the vehicles were registered in the other, or the decision-making which went on in incurring the expenses in the first place, is difficult to say with any certainty. From my perspective, I would be cautioning anyone entering into a new relationship to consider at what time it might be appropriate to incur debts in their name for items that are primarily for the benefit of their partner or spouse.
The reality is, that in family law matters it can be exceedingly difficult to ever appropriately move debt from one person’s name to another as part of a family law property settlement. While the Court has that discretion and there are some limited steps that can be taken, the reality is that in the overwhelming majority of circumstances the legal costs involved in trying to take those steps are likely to far outweigh the amount of the debts in any case. There are a few exceptions to that, particularly when it comes to the Australian Taxation Office, but on the most part, the debts generally tend to have to stay where they are, either by one party retaining the asset to which the debt relates or alternatively the asset being sold and the debt repaid. Certainly, when it comes to things like depreciating assets such as cars and holidays, rarely is there enough equity in the item to yield a sufficient amount to fully pay back the debt in the event it is sold.
In the current financial climate, banks are increasingly reluctant to release parties from their debts when the related asset is likely to be worth less than the debt itself. The bank, which will often hold a mortgage or other security interest over the asset, simply refuses to allow title to transfer on the sale of those assets. It means that parties that are looking to no longer have a relationship with one another have simply no alternative but to remain jointly liable for any joint debts, or otherwise face bankruptcy.
When it comes to family law, often we are left to deal with the circumstances as we find them at the time. If the money has been spent, the loan drawn down, and the debt incurred in joint names, it may often be the case that we are left dealing with finding the most optimal way for those debts to be rearranged on the balance sheet. Often, it is a case of choosing between outcomes which are not ideal.
The takeaway is to consider at what stage in your relationship it is appropriate to take on debt with the other person. If the relationship is relatively new and untested and you are yet to have children together, there may be real benefit in keeping assets and liabilities separate so that if you do ultimately end the relationship at an early stage, it may offer you at least some certainty moving forward. Once you have taken on the debt of your partner or spouse, it may be that it is what lingers after the relationship.
We, as family lawyers, will always do our best to assist you to achieve the best outcome possible, but we are limited by the circumstances that you bring to us.