Many couples take out joint loans, for example, if they need to buy a car or want to make home improvements, but do you know your rights if it all goes wrong?
We talk about ‘joint debts’ but the fact is that each person signing a loan agreement is responsible for the whole lot if things go wrong and the others don’t pay their share. If you and your partner or husband split up, it’s worth knowing what you can do to try and limit the damage to your finances and how you can protect yourself.
Joint loans: what happens if you separate?
Any loans that are in both your names (whether that’s with your spouse or your partner), you are both legally liable for.
If you have a joint bank or personal loan and you separate from your partner, tell the lender that you have split up and that you don’t want any changes to the account (i.e. the amount of the loan increased) without you being informed.
If you’ve taken out a loan in your name but your husband or partner was supposed to pay it, make sure the payments are being made or make arrangements to take over the payments, otherwise your credit rating could suffer.
Make sure the lenders have up-to-date contact details for you too. By law, if they want to take you to court for unpaid debts they don’t have to ensure you’ve received correspondence, it’s enough for them to have sent the information to you.
If you don’t receive letters asking you to pay your debts, the lender could apply to the courts to get a county court judgement against you. If it’s successful, it will remain on your credit reference file for six years and will seriously damage your ability to borrow during that time. Try to avoid this at all costs.
Joint bank accounts
If you have joint bank accounts you should talk to your partner or spouse about writing to the bank to close the accounts. You will both need to sign the letter.
If you prefer, you can contact the bank and ask it not to allow payments with just one signature in future, or get it to take away any overdraft facility. You can’t get one partner’s name taken off a joint account while you’re in the red, instead you have to clear the debts before you can convert it into a sole account.
If you do nothing you could end up with serious debts. If your ex goes on a spending spree and refuses to pay his or her share, you could be pursued for the full debt amount.
Be aware that even though it’s a joint account, some banks will only deal with the ‘first named’; i.e. the first name to appear on the agreement. So the second-named person could find the banks won’t act on their instructions. If getting both signatures on a transaction is not practical (if one of you has moved away, for example), an alternative would be for you to split whatever is in the joint account and open two new separate ones.
You’ll have to inform all the companies you have direct debits with and make sure they’re happy with the new arrangement.
Joint mortgages
If you have a joint mortgage you won’t be able to take your partner’s name off the mortgage (or get your name removed) unless the lender is happy that you can afford the mortgage in your own right.
If you have a joint mortgage and you want to take it over, get in touch with the lender directly. They may charge you an administration fee for transferring it to your name and you’ll need to use a solicitor to sort out the legalities of it.
If your name is on the mortgage but you’re no longer living there, you may feel that there’s little incentive for you to continue paying the loan. But while your name is on the mortgage, it will affect your credit rating if payments aren’t made.