Ways to Avoid Relationship Debt

It’s tricky. How do you draw the line so you can protect your finances from relationship debt without creating a confrontational situation?

Start by being aware of what it is and how it can creep into your life.

Relationship debt is the situation when one person in a relationship becomes liable for the debts incurred by an ex-partner.

I’m raising the issue for discussion because I have started to see more relation debt fallout as well as an increase in situations that have the potential to turn in this direction. Let’s take a closer look at how this can happen and ways to avoid it.

Let’s assume that you have been in a relationship with someone for while. They ask you to co-sign for the purpose of obtaining a loan. What happens if the relationship falls apart? Since your name appears on the loan papers, you could be solely responsible for repaying the debt.

What if you have a credit card in your name and you extend use priviledges to your partner?  It’s your credit card and you are ultimately responsible for the charges incurred.

If any debt is incurred by your partner where you signed for or had your name affixed to any type of loan, you are the guarantor. Under law, any debt must be collected from the borrower (that’s your partner), but if that falls through, you will ultimately be responsible for the debt.

In order to avoid relationship debt, here are a few tips:

• If you and your partner both have assets, set up separate accounts
• Apply for individual credit cards
• Do not co-sign a loan
• If your partner asks you to sign anything, consider consulting a lawyer first so that you are fully aware of what you are signing and the legal obligations contained therein

If you find you are having troubles setting boundaries, saying no or feeling pushed into taking on risk that you don’t want to by your partner, these are warning signs that you may not be in a healthy relationship or financial situation.  Seek professional guidance before doing something that you will regret.

Other methods you might consider to reduce the risk of being responsible for your partner’s debts in the future are:

• Learn as much as you can about finances and the legalities involved when sharing assets and liabilities as a non-married couple
• Make an appointment to speak with a financial planner to help you set guidelines
• Have an attorney write out a formal agreement with your partner that specifically states what both of you are entitled to in case you separate

Although discussing finances with a partner may not be an easy topic, it is an important one. Knowing what each person brings into the relationship and their responsibilities can alleviate problems in the future. 

Have you experienced relationship debt?  Have you ever felt pressured to help out a partner and it did not end well? Or did it end well? How has relationship debt impacted you and your perspective on your finances? Let me know below…