Loans, families and relationship breakdowns

A family member's debts and you
Loan guarantees and co-borrowers
Relationship breakdown and debt

A family member's debts and you

You are generally not legally responsible for paying another person’s debts, even if that person is your spouse, partner or child.

Their debts may distress you, especially if you depend financially or emotionally on them. For example, a spouse or partner's gambling addiction can destroy the financial and general well-being of your family or relationship. Creditors may threaten to force the sale of the car or even your home to get your partner's share of these assets.

If someone you know has a debt problem, encourage them to see a financial counselor (or, if appropriate, a gambling counsellor) or other adviser without delay. For gambling problems, ring the G-Line on 1800 633 635 or 1800 633 649 (hearing impaired).

For information about family relationship support services generally, go to the Family Relationship Services Australia website www.rfsa.org.au.

Loan guarantees and co-borrowers

You may become legally responsible for someone else's debts if you:

give a personal guarantee for someone else's loan;
help someone get a loan by becoming a co-borrower with them and signing the paperwork.

Think very carefully before you agree to be a co-borrower or guarantor, even though you might not benefit from the loan yourself, you could end up being liable (that is, legally responsible) for the entire amount owing if the person who took out the loan defaults on their repayments.

If the debtor has defaulted and the lender demands that you as guarantor or co-borrower take over the payments, or threatens legal action, consider getting legal advice.

In certain limited situations, guarantors may be able to challenge a claim even where they signed the contracts. You should get advice immediately if you:

suffered from a disability or mental illness
only agreed to sign through pressure or fear
did not receive legal advice before signing and did not understand the nature of the documents, or the extent of the risk, you were taking on. For instance, you may have thought you were giving a guarantee limited to a certain amount but a much larger amount is now being claimed or
believe that staff of the lending institution, broker, or retailer through whom finance was arranged, used unfair tactics, or tricked, or misled you.

Relationship breakdown and debt

Debt problems can often arise when relationships break down. To reduce the financial impact of relationship breakdown on you, ensure that your ex-partner does not take savings and use available credit from, for example, joint bank accounts, home loan redraw facilities and credit card accounts.

Five steps you should take

Establish a new transaction account in your name only and ensure that your salary and other payments are diverted to the new account.
Close joint accounts. You may wish to use any funds remaining in a joint account to pay joint debts of the relationship, childrens expenses etc.
Tell your bank or lender about the relationship breakdown and demand, in writing, that it stop any further use of the loan redraw facility. This will be critical if the redraw facility allows either party to access the available credit without the other borrower's authorisation.
Cancel any right your ex-partner may have to access your credit card account as a secondary card-holder.
Arrange for copies of all joint account statements to be sent to you if you change address.

If the breakdown is permanent, you will generally need advice from a family law lawyer about dividing the property of your marriage or de facto relationship. For more about family law and property go to www.familylaw.gov.au (on the the Federal Government Attorney-General's website). Or ring the Family Relationship Advice Line on 1800 050 321.

Community legal centres and legal aid services provide free initial advice about family law matters. Centrelink also has helpful information for people recently separated or divorced (www.centrelink.gov.au); search under Individuals.

If children of the relationship live with you, your ex-partner will generally be required to pay child support. See the Child Support Agency website (www.csa.gov.au).

More help

Managing your debts
Loans and credit
Financial tips on relationships

FIDO Website: Printed 02/10/2010