A guide to joint debts
Dealing with money with another person can often seem like a good idea in theory. It takes your relationship forward and is a great way to showcase that you can be responsible as a couple.
But what happens if things change? Dealing with joint debts can become very hard to manage, and if things turn bitter it can become nearly impossible.
We’ve created this guide to help you understand the workings of joint debt and how you can deal with them should anything go wrong.
What are joint debts
Joint debts are basically any credit or money agreement that you take out with another person, such as a bank account or loan.
When you take out credit with another person, it’s important to remember that you are both responsible for the whole amount. It’s never a case that the debt is split evenly and if either of you can’t pay, you both remain liable.
This is what’s known as ‘joint and several liability’ – which means that although the lender cannot pursue you twice for the whole debt, you can both be chased for full payment until the balance has been cleared.
As such, if you are dealing with joint debts after a relationship breakdown, it’s always best to try and come to an agreement for your joint accounts. This may not always be easy, but if not dealt with properly, they will only escalate and cause you more grief than the relationship did.
How can joint debts affect my life?
No one ever plans for money to become a worry or a problem, but life is unpredictable. Taking on joint accounts or credit agreements is a big decision to make, and it’s important to think about the impact it could have on your life.
Depending on the type of joint debt you have taken on, there can be a number of risks to think about:
Loans or credit agreements
This type of debt leads back to joint and several liability. Regardless of how the money is spent or who spent it, both of you will be responsible for paying the account.
If one of you refuses to pay or becomes unable to pay, this will then fall to the other person.
Bank accounts (including overdrafts)
Putting all your money together into the one pot with another person is something a lot of people do when they decide to live together. For the most part, this can be a great way to make sure you both pay all your bills and that you can run your household in a fair manner.
But mixing all your money together can be dangerous. If your joint account goes overdrawn, whether through an arranged overdraft or by accident, then you both hold the responsibility for paying it back. It’s also very easy to get confused about what money belongs to each of you and it’s possible for one side to take money from the other.
As such, it can be a whole lot easier to instead only have a joint account that is used for bills to be paid. By transferring only what is necessary, it can help to avoid any unwanted struggles.
Taking out a credit card in joint names is something that isn’t possible in the UK. This is because you can only have one main cardholder who will be responsible for payments.
You can add additional cardholders to your credit card account, and they will be given their own card for spending. However, this doesn’t make them legally liable for the bill in any way; you simply share the limit together.
Joint debts and marriage
It can be a common misconception that once you get married everything money-related becomes joint – including any debts. But this simply isn’t the case.
Joining together in marriage or a civil partnership does not make you automatically responsible for your other half’s finances. Even if you live together at the same address, anything that is solely in one person’s name will remain solely their responsibility.
This also goes for your credit reports – which will not be merged. However, if one of you is struggling with credit, then both your credit scores could be affected.
What happens to joint debts when someone dies?
If you have any joint debts or accounts left outstanding when a partner or family member passes, the responsibility of payments will fall on you. This will also be the case if you were a guarantor on a credit agreement with the deceased.
It can become a bit tricky if you are homeowners, as if there is any equity available in the property, a lender can try to claim the deceased’s half of this to pay back the balance owed.
How to deal with joint debts
If you are struggling with joint debts or are unable to pay your share, there are things you can do to help your situation.
The best option to deal with joint accounts after separation or divorce is to usually come to some form of agreement. The impact of not keeping up with payments will affect both of you, so it’s best to try and come to a fair agreement.
Understandably, this can sometimes be difficult if you aren’t on good terms with the other person involved. In this instance, it’s best to speak to the lender or seek debt advice to find out what options you have.
It’s important to remember that lenders cannot force someone to pay their share of a joint account. They will, however, expect payments to be made by at least one of you as you will both be considered liable.
In cases where you are left with debts that you didn’t take out – i.e. they were taken out in your name without your knowledge – then it’s important to flag this to the lender as fraud. It’s also important to report this to the police as it can be considered a fraud crime.
If you’re dealing with joint debts alone or are unsure how to deal with any joint accounts, talk to TAD, our resident debt expert. He’ll work out your debt score within just a few minutes and point you in the right direction.