Few of us think about the dangers of debt and debt consolidation when we enter a relationship. There is so much else to think about that debt rarely enters the conversation. However more and more people find themselves in financial ruin following a relationship break-up. The kind of financial ruin that could have been avoided if they considered what could happen if their relationship was to break-down.
Common Assets and Debts
What will happen to any purchases that you may make while in a relationship? If you have bought the car, a boat, furniture or anything else with your own savings, what will happen to these assets when and if you break up? If you have bought a car for your partner for example and the vehicle is in their name, it may be rather difficult for you to collect it afterwards if this fact was not discussed and agreed previously.
It may become more complicated if you purchase a house in joint names where you have a mortgage together as well as the property. It may be that the deposit only came from one of you. What would happen if your partner simply walks away from their mortgage responsibilities as well as from your relationship? What would you need to do to ensure that you do not default on the mortgage?
Remember that the lender does not care about the health of your relationship – only their loan repayments. It would be very detrimental to your credit history if you stop paying the mortgage out of spite. While both your and your ex’s credit history would go ‘down the drain’, you would have a difficult time borrowing to buy another house even years later.
Your bad credit the kind that occurs from a mortgagee repossessing and selling the house will remain on your credit report for up to 7 years. During that time you will not qualify for a home loan with a bank. You could qualify elsewhere (non-conforming lenders) but a larger deposit is usually required, which makes it difficult to qualify.
Guaranteeing their Debts
Take care when you are asked to go guarantor on a loan which is not your own. It may be a business loan for your partner, a debt consolidation loan or a car loan. Whatever the loan whose repayment you guaranteed either with your assets or your income or both, may become your exclusive responsibility. Should your ex decide not to make any more payments after your break-up you will need to maintain 100% of the payments from your income. If you do not, at best your credit history will be seriously damaged which will affect your ability to borrow for years to come. At worst, any assets that you offered to secure this finance may also be repossessed and sold to make up the lender’s loss.
These are serious issues which should be considered by anyone heading into a new relationship and looking to share assets and or debts as part of that relationship.