Divorce is often a complex and lengthy ordeal with multiple stages, including separation, divorce proceedings, property and parenting proceedings. Property proceedings usually entail the splitting of assets such as property, superannuation & other funds, as well as the splitting of liabilities such as debt. However, debts incurred during the marriage are usually paid out of the joint assets.
In Commissioner of Taxation v Tomaras, the Court emphasizes that they can give orders substituting one party for another in marriage in relation to debts. This has real, tangible implications for persons considering divorce as they could end up with debt their spouse had personally incurred during the marriage.
Background:
The applicant (wife) and respondent (husband) were married in July 1992. They separated on July 2009.
On November 2009, the wife (applicant) was found by the Court to be owing income tax, Medicare Levy, penalties and general interest charges to the Commissioner of Taxation, at the value of $127, 669.36.
On 5th November 2013, the husband (respondent) declared bankruptcy and in 20th December 2013, the wife commenced property proceedings proposing for the husband to substitute her as the debtor for the debts owed to the Commissioner of Taxation.
In February 2016, the Commissioner of Taxation made an application to intervene in the proceedings. The Commissioner argued that the court had no power to substitute the husband for the wife in relation to the wife’s tax debt.
Ruling:
The High Court rules that courts can exercise the power, under s90AE Family Law Act, to substitute one party in a marriage for the other in relation to any debt as part of the property proceedings. However, the court must be satisfied that s90AE(3) Family Law Act considerations are met. These include:
- Making the order was reasonably necessary or reasonably appropriate for the division of property between the parties in a marriage; AND
- It was not foreseeable at the time of the proceedings that the debt would go unpaid; AND
- It was just and equitable to make the order
The High Court ultimately held that an order for substitution should not be made as the husband (respondent) was unlikely to meet the debt currently and in the future. Furthermore, it would not be just and equitable to make the order as the wife (applicant) was currently solvent and able to pay the debt, whereas the husband (respondent) was not.
Implications
The Court does have the power to make you personally liable for your spouse’s debt during the marriage. This power is very rarely used, if ever as the criteria in s90AE(3) Family Law Act is quite a high threshold. Nonetheless, it is still possible that the Court may make a substitution order during property proceedings, especially where your spouse may be bankrupt or financially worse off and unable to pay their debts.
The above information is intended as general information and is not intended to be relied on as legal advice. If you are considering applying for divorce and property proceedings contact one of our experienced family law solicitors on (02) 9920 1787 to discuss how we may assist you to achieve a favourable outcome. Our principal is named as leading Family and Matrimonial Lawyer of the Year by Acquisition International in their 2019 leading Adviser Awards. Pannu Lawyers are conveniently located in Blacktown and practice extensively in Family Law, Criminal Law, Commercial Law and Conveyancing.
