When you separate both your property and debts will be considered. Section 20D of the Property (Relationships) Act 1976 requires the value of the relationship property to be divided is to be calculated by first deducting the total of any relationship debt owed by either or both spouses/partners.
What is a relationship debt?
Relationship debts are classified in section 20 the Act and generally are those incurred jointly between spouses or by one for the benefit of the relationship or property pool.
This includes separate credit card debts incurred for family expenses or debts relating to a business which one party controls if that business provides income for the household. These debts would be a relationship debt even if you had no knowledge of their existence.
However, that does not mean that every debt you or your spouse/partner owes will be a relationship debt.
Examples of separate debts
A liability will be a separate debt to the extent that it does not fall into one of the categories of a relationship debt.
Debts incurred for individual purposes will be a separate debt. Some classic examples are student loans, or debts secured over separate property such as pre-relationship property. With student loans the proportion of the loan incurred for living costs may be a relationship debt if it is spent on family expenses.
Another example of a separate debt is a liability incurred for a business which is not a common enterprise between the parties and where the business does not provide income for the household. This may be the case with a start-up company running at a loss.
A third example of a separate debt may be a liability incurred by one party for trust owned property. This could occur where one party has settled a trust prior to the relationship which owns property and for which there is a mortgage in the spouse/partner’s name. That debt would be a separate debt.
Also, if relationship property has been paid towards separate debts then there may be a case for compensation under section 20E of the Act.
Debts can be hard to classify but it should not be assumed that all liabilities will be relationship debts for which each party is equally responsible. Please seek legal advice if you are unsure of the classification of your debts.