The global financial crisis (GFC) has been difficult for
businesses, families and individuals around the world. Whilst
Australia has largely escaped much of the financial hardship that
other countries have seen to date, we are still being warned that a
further economic downturn is likely in the near future.
At the end of 2010 however, it was widely reported that
Australia had experienced an increase in the rate of divorce, the
first for many years, which was partly attributed to the
GFC. Commentators and experts noted that the number one reason
given for relationship breakdowns is "financial trouble"
and so this increase in divorce seems to be an outcome of the
hardships faced in the previous couple of years.
Unfortunately, the reality is that debt and associated financial
problems are a major issue for many families. Couples and families
who purchased property, or took on extra debt, when interest rates
were low, have been forced to deal with numerous rate rises and a
significant credit squeeze.
For some couples, they may try to stay in the relationship
longer because of financial issues that seem insurmountable such
exit fees for fixed interest loans;
diminished share portfolios; and
low property valuations.
For others, they elect to separate, pay off their existing debts
and start afresh.
One issue facing many couples when they separate is the question
of who should be responsible for the debts of the marriage or de
facto relationship after separation?
The simple answer is that all debts accumulated during a
marriage or de facto relationship will form part of the
"pool" of assets (and liabilities) to be divided when the
parties' financial affairs are separated.
An essential part of working out each persons' entitlement
for property settlement to is first ascertain the net value of
their combined assets. This includes all property such as land,
shares, savings, motor vehicles and home contents. The value of
assets is then offset against the parties' total liabilities,
which gives the net assets for division between the parties as part
of a property settlement.
It does not matter whose name the items of property are in, or
whose name the debts are in. The general rule is that debts (as
well as assets) accrued during a relationship are shared. Of
course, there are some exceptions to this general rule, such as
when a long period of time elapses between separation and a
financial settlement taking place.
Where there are substantial debts, it is often better to hasten
the process of finalising a property settlement after separation.
Working out a property settlement typically involves an exchange
between the parties of financial information, followed by
negotiation.For many people, obtaining sound family law advice
early after separation can help them to reach an agreement about
their property settlement more quickly. This can in turn help
alleviate the ongoing burden of marital or relationship debt.
For people experiencing hardship as a result of debts after
separation, it can sometimes help to contact your bank or other
financial institution to ensure that they are aware of your change
in circumstances. Financial advice from an accountant or financial
counsellor may also be appropriate.
At Coleman Greig we can provide sound, reliable advice regarding
your options following separation. We can advise you of the likely
outcome regarding your property settlement and help you to
negotiate the best solution in your individual circumstances.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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