Family And Joint Debt

Being in debt can impact various aspects of your life - not just your finances. The emotional burden of dealing with debt can put a strain on your relationships with others, and this can make you feel as if you need to keep your money worries hidden or play down the severity of your debt.

However, when you borrow money with a family member, partner, or spouse, the consequences of non-payment can be more severe as you'll both be responsible for repaying the full amount. By understanding what joint debt is and the implications it can have on your finances, you can be better equipped to enter into a joint credit agreement.

What are joint debts?

If you take out a financial agreement with someone else, such as a family member, partner, or spouse, you'll both be responsible for repaying the money owed - this is known as a 'joint debt' and essentially means both borrowers are responsible for paying back 100% of the debt.

However, if one person can't or won't pay, the other person will become responsible for the total amount borrowed under something called 'joint and several liability'. For example, if you take out a joint credit agreement worth £1,000 and the other person stops paying, you'll become responsible for repaying £1,000, not £500.

This can lead to less financial pressure for you if something was to happen that meant you could no longer meet your financial obligations, but dealing with joint debt can also put a strain on your relationship with the other party and may result in stress or conflict.

What are some examples of joint debts?

There are various types of secured and unsecured loans that can be taken out as joint credit agreements, including:

Mortgages

One of the most common forms of joint debt is a mortgage taken out on a family home. Even if you and your partner are responsible for different household costs, if the joint loan was taken out in both of your names, you'll both be responsible for repaying 100% of the mortgage in the eyes of the law.

Bank loans

Whether you're looking to fund a home renovation or your dream wedding, a joint bank loan is a popular way of being able to afford joint projects or events you're both equally interested in. Remember, regardless of whose idea it was to take out credit, you'll both be jointly responsible for repaying 100% of the debt owed.

What are the advantages and disadvantages of joint loans?

"When the other party listed on the credit agreement can't or won't pay, you'll become liable for 100% of the money owed and must ensure all future payments are made in full and on time."

Having joint loans can make it easier to budget for day-to-day expenses, but it can also come with its drawbacks. Here is a quick guide to the advantages and disadvantages of joint loans:

Advantages

Larger loan amount

One of the biggest advantages of taking out a joint loan is that you may be able to borrow more than you would if you were to enter into a credit agreement on your own. This can help you purchase a home, fund a home renovation, or finance a wedding sooner than if you were to shop around for a loan on your own.

Greater peace of mind

Even if you and your partner are earning a comfortable income, financial emergencies can happen and a situation may arise where you're suddenly forced to rely on one income source instead of two. When this happens, you can be reassured that the joint loan will be covered by the other person's income and there's less chance of you accruing missed payments or defaults.

Disadvantages

Added financial pressure

When the other party listed on the credit agreement can't or won't pay, you'll become liable for 100% of the money owed and must ensure all future payments are made in full and on time. This includes all credit agreements, including joint bank accounts that may be overdrawn.

Strain on relationship

Most partners end up sharing their finances at one point or another, but money is one of the most common causes of arguments and disagreements between married couples. Never enter into a joint credit agreement with anyone unless you've had an open and honest discussion about money and how you plan to manage your individual and joint finances going forward.

Can a joint debt be split 50/50?

Unfortunately, joint and several liability prevents joint debts from being split and if you take out a joint credit agreement with another person, you'll both be responsible for the entirety of the outstanding debt - not just your share of it.

Even if your relationship breaks down or your financial situation changes (e.g. you split up with your partner or lose your job), the terms of the original credit agreement will remain intact and you'll still be equally responsible for repaying the debt.

The only exception to this rule is credit cards, as these can't be taken out as a joint debt. This means that, when you take out a joint credit card with another person, you can still share the same bank account but the primary cardholder will be responsible for making 100% of the repayments.

What should I do if I have joint debts with a former partner?

"When both you and your ex-partner refuse to make payments towards a joint credit agreement, both of your credit scores will suffer and you'll struggle to get approved for further credit."

One of the biggest risks associated with joint debt is breaking up or divorcing the person you took out the original credit agreement with. When this happens and the other person racks up missed payments, the lender will look to you for 100% of the money owed.

Some people falsely assume that if they go through a divorce, their creditor will allow them to split a joint debt down the middle and they'll both become responsible for 50% of the total debt. However, this isn't the case, and both parties will remain liable for 100% of the debt.

When both you and your ex-partner refuse to make payments towards a joint credit agreement, both of your credit scores will suffer and you'll struggle to get approved for further credit. This can prevent you from moving on and making a fresh start with your finances.

The best solution is often to come to a mutual agreement to continue making payments from a joint account but, if this isn't an option, a debt expert may be able to act as a mediator to help you reach a resolution that you can both agree on.

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Will my partner's debt affect me?

Generally, an individual is only responsible for a debt they took out in their name. This means that, as long as your name isn't on your partner's credit agreement and you didn't sign a contract or act as a guarantor, you can't legally be chased for payment.

Despite what some people think, being married to someone doesn't automatically mean you inherit their debts and, if you don't have any joint finances, such as a joint bank account or mortgage, you can't be made to pay a penny towards the debt.

However, if you applied for a joint credit agreement with your partner or signed any documents when the loan was taken out, a lender has the right to pursue both of you for the money owed and you could be chased for the debt if your partner refuses to pay up.

The only exception to this rule is for council tax because, even if your name isn't on the original council tax bill, anyone over the age of 18 who lived at the address when the debt accrued is technically liable for payment.

Is family and joint debt the same?

The terms 'joint debt' and 'family debt' are often used to describe the same thing, but there are some key differences you should know about.

For example, family debt is more of a universal term for a debt that is taken on by a family, such as a family member helping a parent or sibling repay outstanding debts, while joint debt is the name given to joint loans owed by more than one person. This is usually a married couple, which is why joint debt is commonly referred to as 'matrimonial debt', but not always.

Some joint loans can also be taken out between two people in a traditional business partnership and, in this instance, both partners are held liable for 100% of the total debt accrued. However, if you're a partner or director in a limited company, you're classed as separate from the business and won't hold any legal responsibility for the debts accrued by the business.

What can happen if I ignore a joint debt?

There can be serious consequences for both parties if one or more person refuses to stick to the original credit agreement and make payments as agreed.

Firstly, if the other individual refuses to pay, the creditor will pursue you for 100% of the money owed. This will usually lead to you receiving letters, emails, and phone calls for payment and, in some instances, can result in debt collectors chasing you for the money owed.

However, if you continually refuse to make payment, your case can be escalated to the court and your creditor might resort to legal action in a last-ditch attempt to get you to repay what you owe.

Furthermore, any unpaid debts - including joint debts - will lower your credit score and make it difficult to access further credit for several years. This is the case for both parties and will mean both you and the other party listed on the credit agreement will likely struggle to get a loan or mortgage until the debt has been repaid.

What happens to a joint debt when the other person dies?

When an individual listed on a joint credit agreement dies, the other party will become responsible for repaying 100% of the debt. This means that, if you have a joint mortgage with your spouse and they die, the lender will expect you to repay 100% of the outstanding balance.

However, if the other person had a life insurance policy that could pay off the remaining mortgage balance, you may not need to pay a penny towards the debt and can focus on getting your finances in order in the wake of your partner's death.

Remember, you're only responsible for repaying your partner's debt if you had a joint credit agreement and you won't automatically become responsible for any debts they had when they die - even if you're married.

Conclusion

If you've taken out a joint credit agreement with another person, such as a family member, partner or spouse, it's important to know what to expect and what could happen if you or the other person can't or won't pay.

Before you agree to a joint credit agreement, you must seek expert debt advice to ensure you've considered all the potential risks and rewards. Sharing the responsibility may mean you can borrow more money but it can also put a strain on your relationship - especially if money is already a touchy subject.

Failure to pay a joint debt will lead to the other person named on the credit agreement being chased for the outstanding balance and, if this doesn't lead to full repayment, your creditor will likely seek legal action until they recover the money owed.

unsecured debt