The emotional ramifications of bringing debt into a relationship can be the source of a lot of friction – a difference in the way partners handle money is particularly hard for many couples to weather. As with any fraught situation, part of making it through is to be as well-informed as possible. Seeking the right kind of counselling never hurts, either! While we’re not in the business of relationship counselling, we can offer some insight on the financial counselling side.
The biggest news you should know is that unless you have guaranteed your partner’s debt, you’re not liable for it. Even if you’ve been using a secondary credit card, say, on your partner’s account, your partner is still solely responsible for its repayment. This is true even if your partner dies. His or her creditors will be paid out of the estate before any assets make their way to you, but your assets will never be touched.
As a result, if you and your partner have significantly different levels of debt, it may make sense to consider keeping assets in the name of the partner with the least debt. You’ll also want to have a thorough discussion about what assets – and liabilities – you’ll hold jointly. If you have co-signed for a debt your partner takes on, or if the debt is part of a joint account, you are equally responsible.
If you choose to have a joint bank account or joint credit, it can be a source of friction if your spending habits and philosophy of what money is and how to manage it aren’t the same. If a debt is solely your partner’s, it may still make sense to help pay it off if it’s what’s standing between you and your shared goals, such as home ownership.
Should the amount of your partner’s debt prove insurmountable and bankruptcy start to look like the most desirable option, rest assured that you are no more responsible for your partner’s bankruptcy than you are for his debts. Whether you are married or living common law, you are only responsible for those debts for which you cosigned or obtained jointly. You are only ever responsible for debts with your name on them.
Your partner’s bankruptcy will not affect your credit, but of course it may affect your ability to obtain joint credit in the future.
If you do have joint debts, or have cosigned for your partner’s debts, you will still be obligated to repay those debts in full should your partner choose to declare bankruptcy. It’s always important to fully disclose your financial situation to your credit counsellor / bankruptcy trustee; if your joint debts are significant, filing jointly or both filing for bankruptcy may make sense.
In the event of divorce or separation, you remain responsible only for those debts held jointly or for which you cosigned – a divorce will not remove your obligation to repay those, though. If your estranged spouse files for bankruptcy, you may find yourself responsible for repaying jointly held debts, even if you did not personally incur them.
Whatever your circumstances, it’s vital to discuss your particular situation with an expert. Call us to find out what your options are.