What happens to HECS debt in a family law settlement?
Written by Maddie Bonadeo, Associate
HECS debt is front of mind following the announcement from the Australian government that millions of Australians with student loans will have hundreds of dollars wiped from their HECS debts as the federal government rolls out its plans for cost-of-living relief in the 2024/25 budget. In current times it is becoming more common for separated couples to have a liability arising from their completion of tertiary studies.
HECS debts can be quite substantial for one or both parties to a defacto relationship or marriage particularly given the indexation that has been significantly affecting many Australians with some Australian incurring indexation at a higher rate than they are able to pay their HECS debt off. But what happens to HECS debt in a family law settlement? Is it considered part of the matrimonial total net asset pool or is it excluded from this pool?
There is no ‘hard and fast’ rule for how the Court views a party’s HECS debt
Nor is there any 'hard and fast' rules about whether the Court is satisfied that the debt should be considered a joint debt of the parties. When making a determination as to how to treat HECS debt in any given matter the Court may consider:
Whether the studies attributable to the HECS debt have been completed. In the event that one individual has not finished their studies, any additional income and benefits that they may receive as a result of obtaining those qualifications with be solely enjoyed by that individual alone.
Whether the parties have derived a joint benefit from the studies attributable to the HECS debt. That is, did they both benefit from one person having a higher income to support the family unit as a result of one individual obtaining those qualifications.
If both people had a HECS debt, whether both of those HECS debts continue to exist or whether one of those debts was repaid using joint funds.
Whether there was an agreement that one individual would undertake further studies which resulted in a HECS debt being accrued.
Whether the individual with the HECS debt will actually have to repay the HECS debt from their income in the immediate future. For example, it might be the case that an individual with a HECS debt falls below the income earning threshold required to mandate repayments towards that debt.
Here are some examples...
In Zimm & Nickolson [2014] FCCA 206 the Court determined that the wife’s HECS debt should be considered a personal liability as she had not completed her studies and as such the husband would not enjoy the benefit of the wife completing her studies should she ever choose to do so.
In Berry & Berry [2010] FamCA 575, the Court determined that the wife’s HECS debt should be considered a joint liability as the additional income the wife derived from completing her studies benefited the family as a whole, and the husband had agreed to allow the wife to complete those studies during the relationship.
How a HECS debt is treated in a family law property settlement can in some cases, be a significant issue and it is important to understand how your HECS debt or your previous partner’s HECS debt may be treated.
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