When you separate, is one spouse responsible for debts of the other?

When a marriage or de facto relationship breaks up financial matters often cause a lot of grief, especially when money is used as a weapon to hurt the other partner.

Struggling with a broken heart is awful but when the split reveals one partner has a tsunami of debt, there are fights over assets or bank accounts – life becomes monumentally stressful.

People often think about the division of assets and custody of children, but debt floats our boat and we have investigated what happens when a Kiwi couple decides to set sail in different directions.

Whose name is the debt in?

In New Zealand, the first principle is – who has entered the loan contract or agreement?

If the debt is in your name you are liable to repay it when the relationship breaks up, even if it is for something you both used, needed, or wanted.

For example, if you bought a TV on hire purchase and the agreement is in your name. Maybe your estranged partner took the TV when you divided up the household items and now, you want them to make the hire purchase payments. They may agree to continue with the payments, but they need to pay you, and then you pay the lender.

The debt will remain in your name and you remain liable for payments, even if there is a court ruling that your ex-partner will make payments to you to cover the hire purchase debt for the TV. If they don’t pay you and you don’t pay the lender, it is your problem and it is your credit rating that is affected.

Who pays the mortgage on a house?

Continuation of mortgage payments for a house is a tricky situation but again, it depends whose name is on the property title and the mortgage agreement.

A separated couple may continue to share the payments if they are still amiable and this works for them, which may be an option when children are involved and stability is a priority. However, long term, this may create more uncertainty about who gets what from the property when it is eventually sold, a new partner starts living in the property or one of the joint owners dies.

If a complete division of assets is required, separating couples can talk to the bank to see if one ex-partner can buy the other one out but the bank will have to abide by responsible lending principles. The mortgage provider will need to know the borrower or guarantor can make the payments under the loan, or comply with the guarantee, without suffering substantial hardship.

That means the bank needs to know one ex-partner can afford to make mortgage payments on their own. If neither option suits the couple when they separate, they may need to sell the house and start over. Marriages, civil unions, and de facto relationships are covered by law when a property is divided, and different rules apply depending on whether the relationship has existed for more or less than three years.

There is a good explanation on the Ministry of Justice separation and divorce webpage.

What if my ex-partner racked up debt in my name?

There are situations when one partner is responsible for a flood of debts the other partner has racked up in their name.

Maybe the spend-without-a-care partner had access to online accounts, fuel cards, or mobile phone accounts. The arrangement may have been okay when the relationship was all chocolates and roses, but when the thorns come out and the chocolate melts – estranged partners can be distraught by an ex’s budget blowout.

A situation like this may require a court ruling but this is time-consuming and expensive.

If the ex-partner bearing the load of the debt can’t make the repayments, they may need to enter into an insolvency procedure. Like the TV on hire purchase scenario discussed earlier, the court is most likely to rule that the debt should be repaid by the other party but the debt will remain under the liable party’s name and the other partner must make payments to them.

Who takes the pet and who takes the debt?

For many of us, our fur babies are as important as children, and when a relationship splits there can be heartbreak over custody of a pet. There can also be disputes about loans that may have been incurred for vet services.

Whether the pet goes with the person paying off the loan or with the other pet-parent, the responsibility for repaying the loan is with the person who took out the loan.

Even if the pet was your ex’s and you arranged finance in your name to cover vet bills – it remains your liability.

Partner or kids on the credit card account

If you have a joint credit card account, then both you and your partner are liable for repayments. However, if the credit card is in your name and you have additional cards on your account for your former partner and maybe the kids – you are solely responsible for the debt.

Maybe the kids have been at university and living the high life or your ex has had an online blast gambling, buying boat bits or shoes and now you must repay it all.

Sometimes angry estranged partners will go on a spending spree with their ex’s credit card, so you may want to freeze the account as soon as possible. Better still – make sure everyone in the family is responsible for their own credit card accounts, which are in their names.

We are in business together. Whose debt is whose?

Many couples are also business partners either trading in partnership or through a company of which they both might be directors and/or shareholders. When their personal relationship breaks apart, they may choose or have to stop working together, but where does that leave the business and themselves as individuals?

If it is a company, then it is the company that is responsible for any debts unless the directors or shareholders have signed a personal guarantee, and then they are liable for the repayments.

When a life couple part, they may decide one person will no longer be a director of the business and they can simply be removed, and that’s fine if they have not signed a personal guarantee. If they have then they will still be liable.

For instance, many commercial leases and hire purchase agreements require a personal guarantee from the directors and/or shareholders.

If you have signed such an agreement and then, the company fails to pay – you are still liable for the payments. In a partnership scenario, both partners are liable for the full amount of any debts, or contractual arrangements. Extricating yourself from a partnership can be problematic and will require certain steps to be taken to ensure that the partnership effectively ceases, and all suppliers or creditors are notified formally.

Behind the scenes, you may agree on a percentage split of the debt repayments, but the creditor just wants 100 percent of the payments – no matter how that debt is divided between the liable directors, shareholders, or partners.

Share the responsibility

Sometimes life is easier when you share the load with your partner, that is, have assets in both partners’ names and make joint applications when applying for loans or opening accounts. It may not be desirable to do this in unstable relationships and sometimes one partner brings debt into a relationship that they incurred before they laid eyes on each other.

Household utilities such as power, water, and rates may also be only in one person’s name and if anything goes wrong, the other partner has no access to the accounts. Money and debt mean different things to different people and like all things in life, keeping communication open and honest can improve the outcome of a relationship break up.

Simply put – if the debt is in your name then you are liable. If it is not in your name then you are not liable.

If you are struggling with breakup debt contact Debtfix: phone 0800 DEBT101, email helpline@debtfix.co.nz, or kick start the process by completing our online form now.