What hap­pens to debt when you sep­a­rate?

Kapi-Mana News - - OPINION - ALANAL KNOWSLEYKN

When a cou­ple sep­a­rates, the gen­eral rule is if the re­la­tion­ship has been for three years or more, all re­la­tion­ship prop­erty will be di­vided 50/50.

In de­ter­min­ing the value of the re­la­tion­ship prop­erty pool that is to be di­vided, the to­tal value of the re­la­tion­ship’s as­sets will be as­cer­tained and then the to­tal amount of any re­la­tion­ship debts will be de­ducted from that amount.

This can some­times re­sult in sit­u­a­tions where part­ners at the end of a re­la­tion­ship are sim­ply split­ting debt.

A debt can be a re­la­tion­ship debt with­out both part­ners be­ing aware of it.

The Act de­fines a re­la­tion­ship debt to mean a debt that has been in­curred:

By the spouses or part­ners jointly, or

In the course of a com­mon en­ter­prise car­ried on by one or both of the part­ners, or

For the pur­pose of ac­quir­ing, im­prov­ing, or main­tain­ing re­la­tion­ship prop­erty, or

For the ben­e­fit of both spouses or part­ners in the course of man­ag­ing the af­fairs of the house­hold, or

For the pur­pose of bring­ing up any child of the re­la­tion­ship.

Take for ex­am­ple a sit­u­a­tion where one part­ner’s job re­quired them to buy a share of their busi­ness and to do so they had to ob­tain a loan.

Re­gard­less of whether the fact of the loan was dis­closed to their part­ner, if the busi­ness was one from which the cou­ple de­rived in­come to sup­port their re­la­tion­ship, that debt would be a re­la­tion­ship debt.

Sim­i­larly, if one part­ner ob­tained a credit card with­out the knowl­edge or con­sent of their part­ner, and that credit card was used to pur­chase ev­ery­day house­hold items, to pay for fam­ily hol­i­days, or to as­sist with the up­bring­ing of the cou­ple’s chil­dren, then that credit card debt would be re­la­tion­ship debt.

It is not un­usual in sit­u­a­tions where we are as­sist­ing cou­ples to divide their re­la­tion­ship prop­erty to un­cover debts ( such as tax debts), credit cards, or other lines of credit in­curred by one part­ner with­out the knowl­edge of the other, in some in­stances in ex­cess of $400,000.

The con­se­quence of dis­cov­er­ing a li­a­bil­ity, to which you had not con­sented, es­pe­cially dur­ing sep­a­ra­tion, can be quite trau­matic.

Although you can never hope to ac­count for ev­ery ac­tion of your part­ner, you can take steps to pre­vent be­ing caught out in such a man­ner upon sep­a­ra­tion.

If you and your part­ner agree to en­ter into a Con­tract­ing Out Agree­ment, one of the terms could be to do with the re­ten­tion or di­vi­sion of debt.

For ex­am­ple, a clause could be in­cluded whereby each part­ner was re­spon­si­ble for any debts in their sole name re­gard­less of the pur­pose for which the debt was in­curred.

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