Sex­u­al­ly Trans­mit­ted Debt: Are you liable for your ex’s debts upon separation?

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In Brief

Sep­a­rat­ing par­ties are often anx­ious to know whether they will become liable for their ex-part­ner’s debts upon sep­a­ra­tion. This arti­cle dis­cuss­es sex­u­al­ly trans­mit­ted debt and what it means in the con­text of fam­i­ly law proceedings.

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What is ​“sex­u­al­ly trans­mit­ted debt”?

“Sex­u­al­ly trans­mit­ted debt” is when you become liable for your part­ner’s debt as a result of your mar­i­tal and/​or de-fac­to rela­tion­ship, rather than a con­scious knowl­edge or accep­tance of the debt.

Who is liable for debts upon rela­tion­ship breakdown?

Sex­u­al­ly trans­mit­ted debt can arise in a rela­tion­ship in a num­ber of con­texts, for exam­ple, when you pro­vide an ​“all monies” mort­gage or if you guar­an­tee your part­ner’s busi­ness loan. In the con­text of fam­i­ly law pro­ceed­ings it com­mon­ly aris­es when one par­ty incurs debts dur­ing the rela­tion­ship (for exam­ple by not pay­ing their tax­es as and when they are due, by gam­bling large sums of mon­ey or by unsuc­cess­ful­ly invest­ing in risky invest­ments like futures or option trad­ing) and the oth­er par­ty becomes liable for a share of those debts.

In deter­min­ing prop­er­ty dis­putes the first step is to iden­ti­fy and val­ue the par­ties’ assets, lia­bil­i­ties and finan­cial resources. The net assets capa­ble of divi­sion between the par­ties are then arrived at by deduct­ing the debts of the par­ties from the val­ue of their property.

The gen­er­al posi­tion in Aus­tralian fam­i­ly law pro­ceed­ings is that in the absence of being able to prove ​“waste” or that the debt was not enforced or was unrea­son­ably incurred, then debts which accrue dur­ing the rela­tion­ship are shared. This is because mar­riage is viewed as an eco­nom­ic partnership.

In cer­tain cir­cum­stances, this can extend to becom­ing liable for your part­ner’s debts even if they were incurred after sep­a­ra­tion. This is because debts usu­al­ly ​“come off the top” of the pool of assets pri­or to decid­ing how the remain­ing assets should be allocated.

Waste is noto­ri­ous­ly dif­fi­cult to prove. It must be a finan­cial loss result­ing from a par­ty’s con­duct which was designed or intend­ed to reduce the val­ue of mat­ri­mo­ni­al assets, or a par­ty’s reck­less, neg­li­gent or wan­ton actions which have effec­tive­ly reduced the val­ue of mat­ri­mo­ni­al assets.

Igno­rance is no excuse. Some­times even though you were not in pos­ses­sion of knowl­edge to make you suf­fi­cient­ly aware of the oth­er spouse’s behav­iour which caused the debt, the court may still con­sid­er the debt reasonable. 

What can I do to pro­tect myself?

It is impor­tant to insti­gate an open dia­logue between you and your spouse and/​or de fac­to (whether you are togeth­er, sep­a­rat­ed, or at risk of sep­a­rat­ing) in rela­tion to your joint finan­cial posi­tion so as to avoid being tak­en by sur­prise in the unfor­tu­nate event of rela­tion­ship break­down. If your part­ner has incurred large debts and you do not con­sid­er you should be liable for a share of them, you will need to col­lect evi­dence that proves the debt was either:

• unrea­son­ably incurred;
• that it will nev­er need to be repaid (as is some­times the case with loans from fam­i­ly members); 
• that the oth­er par­ty’s actions were reck­less, wan­ton or neg­li­gent; or
• that the oth­er par­ty, by their actions, delib­er­ate­ly sought to reduce the val­ue of the assets capa­ble of being divid­ed when incur­ring the debt.

For fur­ther infor­ma­tion, please con­tact our fam­i­ly law team.