What Happens To Debts During A Divorce In Victoria?





What Happens to Debts During a Divorce in Victoria?


What Happens to Debts During a Divorce in Victoria?

Professional Introduction (First Person)
As a family law professional, one of the most common concerns people share with me during separation is not just about dividing assets — but dividing debts. Many clients are shocked to learn that even debts taken out in their partner’s name may still affect them during property settlement. Others worry about whether they will remain responsible for loans they didn’t know existed, or whether they will be forced to keep paying the mortgage on a home they no longer live in. Debt can be one of the most stressful aspects of separation, especially when emotions are high and finances are stretched. In this article, I’ll walk you through what happens to debts during a divorce in Victoria, how they are divided, what the law actually says, and the steps you can take to protect yourself and secure a fair financial outcome.

Table of Contents

1. Divorce vs Property Settlement: Separate Legal Processes

Many people assume that the divorce itself deals with debts, but that isn’t the case. In Victoria — as in the rest of Australia — divorce simply ends the marriage.

It does not determine:

  • who keeps the house
  • who takes on the credit cards
  • who pays the mortgage
  • how debts are divided

These issues are dealt with through property settlement, which can start before, during or after the divorce (but time limits apply).

2. Are Debts Included in Property Settlement?

Yes. All debts — whether joint or individual — are included in the asset and liability pool for property settlement.

This means the Court will look at the total picture of your finances, including:

  • assets (house, cash, investments, cars, super)
  • liabilities (mortgage, loans, credit cards, tax debt)

Your final settlement will reflect both sides of the financial equation.

3. Types of Debts Considered During Divorce

Common debts included in divorce and property settlement are:

Household and Personal Debts

  • mortgages
  • credit cards
  • personal loans
  • overdrafts
  • store cards

Joint Debts

  • joint credit accounts
  • home loans in both names
  • joint business loans

Business Debts

  • business loans
  • ABN-related liabilities
  • company tax obligations

Government Debts

  • tax debt
  • Centrelink debts
  • child support arrears (handled differently)

4. Joint Debt vs Individual Debt

Understanding the difference between joint and individual debt is essential.

Joint Debt

Both parties are legally responsible — no matter who spent the money.

This includes:

  • joint credit cards
  • joint personal loans
  • joint mortgages

If one person stops paying, the bank will pursue the other.

Individual Debt

Debt taken out in one person’s name, but it may still be treated as a joint responsibility in property settlement.

For example:

  • one partner takes out a personal loan to renovate the home
  • one partner uses a credit card to buy groceries for the family
  • one partner buys a car used by both people

Even though the debt is in one person’s name, the law may consider it joint if the relationship benefited from it.

5. Who Is Legally Responsible for Debt?

This is where many people get confused. There are two versions of “responsibility”:

1. Legal Responsibility (Bank’s View)

The bank only cares whose name is on the loan contract.

2. Family Law Responsibility (Court’s View)

The Court looks at fairness — who incurred the debt, who benefited, and who is better able to pay it.

These two do NOT always match.

For example, the Court may order your ex to take on a debt, even though your name is on the loan. But unless the bank agrees to remove your name, you may still be legally responsible.

This is why refinancing is critical in any property settlement involving debt.

6. How the Court Decides Who Takes Which Debts

The Court considers several factors:

  • Who incurred the debt?
  • What was the debt used for?
  • Did both parties benefit from the debt?
  • Was it incurred before, during or after separation?
  • Does one party earn significantly more?
  • Does one party have primary care of children?
  • Was the debt the result of irresponsible behaviour?

The outcome will be what the Court believes is just and equitable.

7. Debts Accumulated After Separation

Debts incurred after separation may still be included in the property settlement if:

  • they were used for joint expenses
  • they relate to maintaining joint assets
  • they benefit children

However, if a debt is for:

  • gambling
  • alcohol/drugs
  • personal luxury spending
  • a new partner

— it may be allocated solely to the person who incurred it.

8. What Happens to the Mortgage?

Both partners remain legally liable for the mortgage until:

  • the house is sold, or
  • the mortgage is refinanced

The Court may order:

  • one partner to refinance in their own name
  • a short-term shared contribution
  • a sale of the home

If neither person can refinance, sale is often the only option.

9. What Happens to Credit Card Debt?

Credit card debt is included in the liability pool, even if it is in one person’s name.

The Court will assess:

  • who used the card
  • what the purchases were for
  • whether the spending benefited the family

10. How Personal Loans Are Treated

Personal loans may be split depending on what they paid for.

For example:

  • a loan for a car used by both = shared debt
  • a loan for individual purposes = individual debt
  • a loan to pay joint bills = shared debt

11. What About Business Debt?

If one partner operates a business, the debts may still be considered in the property pool.

The Court will look at whether:

  • the business supported the family
  • both partners contributed
  • the debt is necessary for the business to operate

12. What If Your Ex Has Hidden or Secret Debt?

This happens more often than people realise.

If one person secretly:

  • takes out loans
  • runs up credit cards
  • withdraws joint funds
  • incurs debt without consent

— the Court may order that they are solely responsible.

13. Wasteful Spending and “Wastage”

Wastage refers to money wasted or recklessly spent by one party. Examples include:

  • gambling
  • drug/alcohol binges
  • expensive gifts for a new partner
  • destroying property
  • huge cash withdrawals

If wastage is proven, the Court may give the innocent party a larger share of the remaining assets.

14. What Happens to Tax Debt?

Tax debt is treated like any other liability.

The Court may consider:

  • whose income created the debt
  • whether both benefited
  • whether one party failed to lodge returns

15. Liability vs Fairness: The Key Difference

Even if the Court allocates a debt to your ex, the creditor may still pursue you if your name is on the loan.

This is why property settlements must include:

  • refinancing
  • closing joint accounts
  • removing authorised users

16. Refinancing Debt After Separation

If one party is keeping:

  • the home
  • the car
  • certain debts

They must refinance to take your name off the loan.

This protects your credit score and future financial security.

17. How to Protect Yourself From Debt Problems During Divorce

  • Freeze joint credit cards if needed
  • Remove authorised users on your accounts
  • Monitor bank transactions
  • Document any wasteful spending
  • Get legal advice early
  • Seek an injunction if large withdrawals occur
  • Close joint accounts once safe

18. Common Mistakes People Make

  • assuming individual debt is safe from division
  • letting a partner take out debt in your name
  • not knowing all debt exists
  • ignoring business liabilities
  • not refinancing after settlement

19. Final Thoughts

Debt can feel overwhelming during divorce, but understanding how it’s treated in Victoria can help you make informed decisions, protect yourself, and negotiate confidently. The key is recognising that both joint and individual debts may be divided — depending on contributions, benefits and fairness — and that refinancing and legal protection are essential steps to securing your financial future after separation.

If you need guidance through the debt division process or want to secure a legally sound settlement, the team at Call A Family Lawyer can help you assess your liabilities, protect your interests and achieve a fair outcome.