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12 July 2016 Paying Expenses after Separation

By Sherlene Heng, Senior Associate

Say you and your spouse/partner separate.  There may or may not be children of the relationship.  Prior to your separation either or both of you worked and your incomes were used to pay the family expenses.  After separation you moved out.  Who now pays the expenses you used to pay for the family? 

Often the lower income earning party will expect that his/her expenses are paid by the higher income earning party, but this is not always possible as after separation, the reality is that parties now have 2 households to maintain with the same amount of income.

Each party should take steps immediately after separation to ensure that all his or her income is paid into a separate bank account to which only he or she has access to, and that any redraw or loan facilities cannot be used by the other party.

The following scenarios are food for thought:

  1. You may choose to stop paying the mortgage and other expenses
    1. If you stop paying the mortgage and other expenses, the other party may have to pay these, subject to his/her capacity to do so.  However, the following issues may arise if the other party has no capacity to make the payments or chooses not make the payments:
      • your credit rating may be affected by any defaults on the mortgage if you are a joint mortgagor.  This may make it difficult for you to purchase real estate in the future or even obtain a credit card.  The bank may take action to recover their debt (for instance, through the sale of your real estate which could beat a "fire sale").
      • depending on your actual financial capacity (your income less your expenses), you may find that the timeline within which Court proceedings are commenced are now expedited.  The other party may request that the Court grant him/her a hearing for urgent and / or interim spouse maintenance.  This is of course, subject to the general principles in relation to spouse maintenance, which you can read about here.

Should you decide to stop paying the mortgage and other expenses, we would encourage you to advise the other party in advance that you are doing so, so that he/she has some time to make arrangements to change the direct debits or policies.  Terminating the electricity account on the former matrimonial home and leaving your spouse/partner, and potentially your children in the literal dark does not set the stage for amicable negotiations in the future, not to mention it may significantly affect your children's wellbeing.

  1. You may choose to continue paying the mortgage and other expenses.
    1. You need to take into account however, that it is not necessarily the case that at the end of the day you will receive any financial adjustment for doing so, especially if there are children who reside in the former matrimonial home.  While payments towards the mortgage may be considered a post separation financial contribution, it is likely that the other party will be considered to have made other contributions to "offset" this such as, care of the children during that period.  Some parties mistakenly believe that at the time of the final settlement or judgment, they will receive a cash amount equivalent to the amount spent by them post separation.  This is not correct. 
    2. This does, however, generally "keep the peace", allowing for negotiations to occur between parties which may lead to a final resolution.  It may stave off any interim application for spouse maintenance which may be a time consuming and costly exercise to defend.  You should seek legal advice about whether it is likely that a Court will make Orders for spouse maintenance in your situation and whether it is advisable to agree to an informal arrangement to pay the mortgage and other expenses until settlement.

The above information is to be considered separately from child support, which you may have to pay pursuant to any assessment made by the Department of Human Services (Child Support).

Anything you do or cease to do following your separation potentially has far reaching consequences for your final settlement, and it is advisable for parties to seek legal advice to discuss their personal circumstances and how to best proceed following such separation.

For further information, please contact:

Sherlene Heng, Senior Associate  |  Phone: +61 2 9233 5544  |  Email: sxh@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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