The High Court of Australia (HCA) has ruled that property interests can be altered to allow a spouse to become solely responsible for a former spouse’s debt during a financial property settlement.

In Commissioner of Taxation v Tomaras [2018] HCA 62, the spouses married in 1992 and separated in 2009 (a marriage of 17 years). During their marriage, the wife was assessed by the Australian Taxation Office to have incurred a debt of $250,000. Two months after the husband became bankrupt, the wife sought to alter the party’s property interests in proceedings under s79 of the Family Law Act 1975 (Cth), and pursuant to s90AE(1) that her debt, inclusive of interest charged, be transferred in its entirety to the husband.

 The Full Court of the Family Court found in the wife’s favour, that s90AE(1) “confers power to make an order that the Commissioner be directed to substitute the husband for the wife in relation to that debt”. In unanimously upholding this decision, the HCA held a spouse could be substituted as the debtor in place of the other spouse in circumstances where the court is satisfied that:

  • It is not foreseeable that making the order would result in the debt not being paid in full; and
  • it is just and equitable to do so.

However, as Kiefel CJ and Keane J noted, the question brought before the Full Court was only “ever going to be one of academic interest” because the Husband did not have the capacity to pay the debt in full. It was therefore unnecessary to reach a conclusion as to whether it was just and equitable to make the order.

The implications of this decision are twofold – firstly, it confirms the settled principle that a  liability is to be included in the available property pool of the parties at the court’s discretion and secondly, that a spouse may now pursue a substitution order so as to abdicate their responsibility for a debt in the event of a property settlement.

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