A joint line of credit is one of the more dangerous financial ties that separating couples overlook. Unlike a fixed loan with a defined balance, a line of credit stays open and drawable until someone closes it. Either account holder can draw funds right up until the facility is cancelled, and the lender will hold both of you responsible for the full amount outstanding. Separation does not change that position at all.
What a joint line of credit actually is
A joint line of credit is a revolving facility, typically secured against a property or held as an unsecured personal facility, that allows either named account holder to borrow up to an approved limit at any time. Common examples include home equity lines of credit (sometimes marketed as redraw facilities), business lines of credit held jointly, and unsecured personal overdraft lines attached to a joint transaction account.
The key legal point is this: the lender doesn't distinguish between partners. Both signatories are jointly and severally liable. That means the lender can pursue either of you for the entire outstanding balance, not just half. If your ex draws $30,000 the week after you separate and then stops making repayments, the lender can come to you for the full amount.
Your first steps after separation
Contact your lender as soon as you're able. You don't need a court order or a signed agreement between you and your former partner to place a restriction on a joint facility. Most Australian banks and credit unions will freeze drawdown access, or require dual authorisation for further withdrawals, on request from one account holder. Ask for this in writing and keep a copy of the confirmation.
You should also take stock of the current balance and transaction history. Request a full statement going back at least 6 months. Any transactions made after your separation date become relevant if you later need to show the court that one party drew down funds unilaterally and without your knowledge or consent. Timing matters here, so act quickly. Don't wait until a property settlement is underway to check the balance.
Protecting your credit score during this period is a separate but related concern. If repayments on the line of credit fall behind because your former partner stops contributing, your credit file takes the hit alongside theirs. Protecting your credit score during separation requires active monitoring, not passive hope.
Options for dealing with the facility
There are three realistic outcomes for a joint line of credit after separation.
- Pay it out and close it. If both parties can agree and the balance is manageable, paying the facility to zero and closing it is the cleanest result. Get written confirmation from the lender that the account is closed and both names removed.
- Refinance in one name. If only one party is keeping the underlying asset (for example, the family home against which the line of credit is secured), that person may be able to refinance the facility into their own name, releasing the other party. The lender will reassess serviceability based on the sole applicant's income and liabilities.
- Include it in the property settlement. If neither of the above is immediately achievable, the line of credit becomes a liability to address in the broader property settlement. The settlement agreement should specify who assumes responsibility for the debt and by what date. Bear in mind that a private agreement between you and your ex does not change your joint liability to the lender unless the lender formally releases one of you.
When the line of credit is secured against property
A secured line of credit adds a layer of complexity because the facility is attached to an asset that may itself be in dispute. You can't easily close a home equity line of credit without dealing with the underlying mortgage. If you're working through removing a spouse from a mortgage after separation, the line of credit tied to that same property needs to be addressed at the same time. Lenders will not allow a partial transfer of the mortgage while a separate secured facility in joint names remains open.
If the property is being sold, the line of credit balance will typically be repaid from the sale proceeds before the net equity is divided. Make sure this is explicitly stated in any sale instructions to your conveyancer, and confirm with your lender how the payout figure is calculated at the date of settlement.
Dealing with an uncooperative former partner
If your former partner refuses to cooperate on closing or restructuring the facility, your options narrow but don't disappear. The freeze or dual-authorisation restriction you've already placed on drawdowns protects you from new debt accumulating. For the existing balance, you may need to seek orders from the Federal Circuit and Family Court of Australia directing how the liability is to be handled as part of the property settlement.
Document everything. Keep records of any written requests you've made to your former partner, any responses (or silence), and all correspondence with the lender. This record is useful if the matter goes to court and you need to show you acted promptly and reasonably.
It's also worth checking whether the line of credit is connected to other joint financial products, such as a joint credit card or a shared savings account. Untangling one account while leaving others active can create gaps in your protection. The broader process of closing joint accounts after separation works best when you take a systematic approach across all joint facilities at once rather than handling each one in isolation.
Tax and reporting considerations
If the line of credit was used for investment purposes (to purchase shares or fund a rental property, for example), the interest on that portion may have been tax-deductible. Once the account is restructured or closed, the deductibility position changes. The Australian Taxation Office requires that deductions only apply to the portion of the debt genuinely used for income-producing purposes. If the funds were mixed, get advice from a tax adviser before closing the account, so you understand the consequences for any prior deductions you've claimed.
Keep records of the closing balance and the date the account was formally cancelled. You may need these for capital gains calculations if the underlying asset is later sold.
Getting advice before you act
A joint line of credit is both a banking product and a legal liability, and acting without advice can lock in a worse outcome. Rockwell Family Law Services works with separating clients to identify every joint financial exposure, prioritise which ones carry the most immediate risk, and develop a practical plan for each one. Getting the order of operations right, particularly when a line of credit is secured against property that's also in dispute, is the kind of detail that makes a significant difference to the final settlement.
Contact Rockwell Family Law Services to speak with a family lawyer about your situation.