Sexually Transmitted Debt: The STD that’s more common than you think

Sexually Transmitted Debt: The STD that’s more common than you thinkBy Ilvana Arapovic, Lawyer

There’s another kind of STD floating around – Sexually transmitted debt.

It’s a financial bug and like most STD’s, it can be just as long lasting and damaging to an individual.

So what is it and how can you avoid catching it?

Sexually transmitted debt is when you become liable for your partner’s debt as a result of the breakdown of your marriage or de-facto relationship, rather than a conscious knowledge or acceptance of the debt.

In the family law context, it can arise in a relationship where one person has:

  1. taken out a loan or guarantee on behalf of their partner;
  2. overspent on a joint credit card;
  3. incurred debts during the relationship, like failing to pay a tax liability; or
  4. made an unauthorised withdrawal on the mortgage account.

You might be thinking that you couldn’t possibly catch a STD because you don’t have any money, or maybe you think you’re safe because your partner is the “financially savvy one” in the relationship. Ignorance is not your friend and you might well be at risk of catching a STD.

A STD can leave you exposed to being liable for a share of your partner’s debts, even if they are incurred after separation. For example, remember when your partner made you a secondary cardholder on their credit card? If they suddenly default on the repayments, that post separation-shopping spree they have been on now becomes your problem.

Till debt do us part: High Court rules on transferring tax debt in family law matters

When you enter into the commitment of marriage there is some truth in the vows “for better or for worse”.

What happens if you manage to stay STD free during your relationship but then after separation you end up in the Family Court? The Family Court might find that you too should share in some of your ex-partners debt.

In the case of Tomaras & Tomaras, the Wife simply ignored her various tax assessments and the ATO handed the Wife a $250,000 tax debt.

When the Wife commenced financial proceedings, she sought orders that her tax debt be allocated to the Husband but the Commissioner of Taxation disagreed with the Wife’s application and intervened in the Family Court proceedings.

Ultimately, the matter went to the High Court and it was decided that even though the Wife’s debt arose as a direct result of her failure to pay her income tax assessments, the Family Court has the power to substitute one spouse for the other spouse in terms of a liability owing to the ATO – or in other words a STD.

What does this mean?

Like in the case of Tomaras, you might ultimately become responsible for your partner’s taxation liabilities or penalties from their failure to lodge taxation returns or meet payment of taxation liabilities.

But, before you get too excited about substituting your partner for your own pending tax debts, you will need to satisfy the Court that:

  • the Commissioner has been given sufficient notice about the proposed Order; and
  • there is no doubt that the debt will not be paid in full by the substituted party.

Preventing a STD

We have all heard the saying, prevention is better than a cure.

So, how do you protect yourself from catching a STD and avoid being taken by surprise in the unfortunate event of relationship breakdown?

  1. Use protection – ensure that any joint bank accounts require a “two to sign” authority.
  2. Talk about it – be aware of what liabilities exist in the relationship. Both partners should have visibility of the bank accounts.
  3. Don’t become a secondary holder on a credit card. If the primary holder defaults, you’ll likely be liable for the debt.
  4. Always seek professional advice before signing on the dotted line.

In the event of separation, make sure you notify the bank as soon as possible and check that any redraw facilities require both parties to sign. This will help prevent further infection.

Categories: News & Alerts, Perth Family Lawyers Information, Property Settlement, and Separation and Divorce.