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