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Your partner’s splashing out on designer clothes, appliances and a new car. You’re worried about the budget – and your joint home loan, but they assure you it’s all fine. Then you’re asked for a loan, or you’re covering more than your fair share of the costs, and eventually the financial strain is too much and you part ways. But just as you’re dealing with the breakup comes a big shock! The bank demands you pay all of the home loan, and your ex-partner’s creditors demand payment from you for outstanding amounts on the car and appliances they bought.
Debt can not only destroy a relationship, it can leave you more indebted when you break up. Here’s why and how to prevent it happening to you!
Debt you are liable for in a relationship
It’s really important to know which debts are yours, which are your partner’s and which are shared. This will help you to avoid a situation in which you are liable for debts you didn’t incur.
There are two scenarios for how debt is treated in a romantic or life partnership:
You share debts and are liable for each other’s debts
You can be held responsible for your partner’s debts if you are:
- Married in community of property,
- In a recognised customary or religious marriage or civil partnership without any formal contract, which is regarded as being in community of property, or
- Living together and have a cohabitation agreement that stipulates you are jointly and severally liable for debt.
Under these circumstances, both parties are independently and jointly liable for debt, which means either one or both of you have to pay it off, no matter in whose name it is or whether or not you are still together. For example, if you have a loan for R100 000, your spouse or partner is also liable for that debt, despite the fact that it is in your name.
Top tip: You are also liable for debt that you sign surety for or guarantee, for example your partner’s student loan.
Your debts are not shared and you are not liable for your partner’s debts
You will not be held responsible for your partner’s debts if you are:
- Married out of community of property, with or without the accrual system, or
- Living together and have a cohabitation agreement that stipulates your debt is independently held, or
- Living together and don’t have a cohabitation agreement.
In any of these cases, each party is responsible for any debt they take out. For example, a lender cannot ask you to pay back a home loan held in your partner’s name.
Dealing with debt from the outset
As a couple, you need to decide on the formal status of your relationship and how you will deal with money, and debt in particular, in your relationship.
Make your relationship status formal
When you know how you want to share money and debt, make sure you formalise your relationship and address how things will be dealt with if you split up.
- Review or change your marriage contract – be sure you are happy with the debt you could be exposed to if the relationship ends. Changing a marriage contract will require lawyers and may require an application to the High Court, which can be expensive and time consuming. But it could be worth it to ensure you don’t land up with debts in the future.
- Review or draw up a cohabitation agreement to include financial agreements and decisions and liability.
- Include financial liability and indemnities in your divorce agreement. If you are concerned about any debt issues, seek professional help when you divorce to make sure you don’t end up paying your ex’s debts!
Tips to help you deal with debt together
You should also decide how you deal with money and debt on a day-to-day basis in your relationship, in addition to the formal structure you opt for. Have a look through the tips below and use which ones are appropriate for you!
Have a formal money discussion once a month
Discuss what income you have, what debts you have, what assets you own, and how you manage your money during the month. You can also use this time to budget and track your budget.
Have a formal debt discussion once a month
Firstly, you should agree on how you would like to use debt, for example, avoid using debt for daily living expenses but use debt to buy a long-term asset such as a property. Secondly, you should review your debt, debt repayments and interest rates. Doing this once a month will allow you to quickly see if debt is in or out of control!
Do money activities together
Take a financial education course together, such as the course from Truth About Money, or consider a couples session with a money coach to help you become better money managers.
Set financial goals together
And work out how you can achieve them! For example, buy a house together, save for a holiday, save for education costs for your children, ensure your assets are protected by having short and long-term insurance such as life insurance, home and vehicle insurance.
Share financial applications, decisions and information
This is everything from payslips, to statements for bank accounts, credit cards, store accounts and vehicle finance agreements. You can also decide to share credit records. You don’t have to share passwords, but when you are logged in, share the information with your partner and ask them to share their information.
Watch out for warning signs
Requests for loans, spending more than before or spending nothing, or hiding emails or phone calls can all be warning signs debt is out of control and the creditors are demanding payment. Don’t avoid confrontation if you suspect something is amiss.
Get help as soon as possible
If you suspect there is a problem or you have become over-indebted – it happens to many of us – get help! Set up a debt plan or chat to either a financial adviser, money coach, lawyer or debt counsellor for assistance.
Keep it courteous and objective
Avoid judging your partner or yourself for taking on debt. Debt is so easy to take out and misuse, and because it mounts up quickly, people can become over-indebted very easily. Stick to the facts and look for solutions – it’s much more helpful and constructive than the ‘blame and shame’ game!
Don’t be broke and heartbroken!
Be proactive around money and debt – your relationship will be stronger, financial conflicts won’t derail your relationship and you’ll become more money aware! This will mean you can manage your money better – and have more of it! Now that’s a good reason to formalise your relationship and start the money and debt discussion today!