What Happens to a Joint Loan in a Relationship Split?

Wednesday, March 15th, 2017

Whether it’s a mortgage, or a car loan, when a loving relationship turns to frustration, it’s important that all parties involved understand their financial rights and responsibilities. We asked family lawyer Elisa Turco from Blackwood Family Lawyers to share her thoughts on dealing with debt in a post-breakup world.

Tips About Dealing With Post-Relationship Debt

Remember: A joint loan/debt doesn’t mean you’re only liable for half the debt. If your partner defaults, you may be liable for the whole amount, including fees, interest and charges, even if your relationship ends. See https://www.moneysmart.gov.au/life-events-and-you/families/relationships-and-money.

When separating, in most cases, the debt of one of the parties would be considered a debt of the relationship and the balance taken into account, so that each party would bear a portion of the debt within the property settlement – whether they continue paying it equally, or one pays and the other gets an adjustment off their payout to reflect their non-payment.

Until the parties resolve the matter, or it is resolved by the courts, the creditor can only claim against the person who has the debt in their name, along with anyone that signed a guarantee. A joint loan would mean that the creditor can claim again both parties, meaning that just because your ex says they will take over the loan and pay, it does not mean that you are legally off the hook for that debt.

Any liabilities that are accrued by parties during their relationship (and even some of those accrued prior or after separation) are usually thrown into the property pool for division, just like the assets of a marriage. When you are settling your property settlement (or the court is deciding it for you) both the assets and liabilities will be apportioned out between the parties, or be required to be discharged.

In most cases, a joint mortgage is discharged when the property is sold or the party keeping the property refinances it in their own name. A decision will have to be made about who takes ongoing responsibility for joint loans, and court orders made to transfer that debt to one of the parties.

As is always the case with a property settlement (and the division of joint debt), if you do not have court orders or a financial agreement then your agreement is not legally binding, and you could find yourself wholly liable for that joint debt.

Relationship breakdowns can be stressful and when you add the pressure of financial decisions, the effect can be overwhelming. Make sure you have a support network of family and friends to look after you and if it feels like it is getting you down, consider talking to a professional counsellor to help ease you through the early days of your divorce or separation.

For more information about debt and your relationship split, visit Blackwood Family Lawyers website at: http://www.blackwoodfamilylawyers.com.au/property-settlements.htm.

If you have any questions about your finances, either personal or business, please do not hesitate to contact Loans Actually on (03) 8805-1850 or email glenn@loansactually.com.au.

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