Am I responsible for my spouse's debt in Australia?

WeMoney

Making sacred vows to your partner entails simply agreeing to spend your lives together. Marriage is "for better or for worse", and while you'll enjoy your partner's financial freedom, you could also take on specific responsibilities for their debts.

Before walking down the aisle, you should discuss your finances. With a third of Aussies believing that they will always be in debt, you need to understand your partner's debt liabilities.

Let's get to the following commonly asked questions:

  • When am I responsible for someone else's debt?
  • What kind of debt might I take responsibility for?
  • How can I check if I'm responsible for my spouse's debt?
  • What if I want to help?
  • Am I responsible for my spouse's debt after separation?

Q1. When am I responsible for someone else's debt?

When marrying your partner, you may worry about taking on a legally binding agreement to pay their debt. Rest assured that you're only ever responsible for your debt.

However, say you and your partner have a joint account (I.e. you both deposit and withdraw from the same account). Then, you're both fully responsible for any debt incurred. 

Are you responsible for the debt of a deceased spouse?

If your partner passes away with outstanding debts in their name (not in a joint account), it's settled with assets from their estate. If the assets cannot fully repay the amount owed, the creditors usually wipe the debt out.

If you jointly own a home, only their proportion will go towards the debt. You aren't responsible for any remaining debt the estate cannot cover, but if the debt is on a joint account or remaining mortgage, you must pay the total amount to the creditor. 

Note: Creditors will only take 50% of the money from a shared account or property.

What other reasons might I have to pay someone else's debt?

  • You signed a guarantor agreement on a credit card, home loan, or personal loan. If the guarantee defaults on payments, the debt falls to you.
  • You opened an account for someone else in your name. It's inadvisable to apply for a credit card or loan using your details if someone else will use the account.

Q2: What kind of debt might I take responsibility for?

Generally speaking, you'll only have to pay your spouse's debt on joint accounts. So, if you have a joint credit card, bank account, or mortgage, you're liable for the entire debt.

Important: If your spouse's income stops, you might consider refinancing joint loans to cover the expenses yourself.

Q3. How can I check if I'm responsible for my spouse's debt?

You can check yourself whether you're responsible for another's debt. It's best to know the liabilities you're accountable for before the debt collector comes knocking. Essentially, budgeting for all possible financial obligations will help keep money anxiety at bay.

If you're unsure whether you're a guarantor or joint account holder, speak to the lender. The account will have your signature, and anyone else's who is also responsible. You should also check whether you have made any written or verbal agreements for another's debt.

You will have to pay your spouse's debt if you're a guarantor or joint account holder if they default on payments or pass away. However, if no liability agreement exists, you won't have to pay any debt, regardless of their relationship with you. 

Even if you used your spouse's account as an additional cardholder, you're not liable if your signature or another agreement is missing.

Note: Creditors cannot hold you accountable for a partner's debt accumulated before marriage.

Q4. What if I want to help?

Suppose you decide to help someone pay off their debt. Whether it's a partner, friend, or family member, it would be best if you speak to a financial advisor before voluntarily taking on a partner's debt.

The easiest way to help someone pay off debt is to transfer money to them, as this ensures you keep your name out of any binding agreements. You might organise a repayment plan with the person you're helping if you want the money back.

Another way is to arrange to transfer their debt to you. Typically, this involves signing a guarantor agreement with the creditor, but if they have already defaulted on their payments, you will need to arrange to pay it privately.

Q5. Am I responsible for my spouse's debt after separation?

If you and your partner separate, joint debts remain legally binding. If one party fails to pay, the creditor will ask you to cover the debt. However, if your ex-spouse refuses to make their share of the payment, you can take them to court. It's best to end any shared accounts and joint debts when you separate to avoid such instances arising.

In summary

You're only ever accountable for a debt you agree to pay. If your partner is in debt, you may wish to help. However, if you separate or your spouse passes away, you're not responsible for their debt. 

The only instances where you're legally bound to pay are for joint accounts or where you've signed as a guarantor.

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Disclaimer: The author is not a financial advisor, and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

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