Time to read : 3 Minutes
When it comes to finding that person to share your life with, most people prioritise a ‘good catch’ rather than ‘money match’.
But – when your relationship progresses to combining worlds and maybe co-habiting – money issues can quickly take over your relationship.
So if you make the wrong call and end up with someone with a debt tendency, or dependency, you could even be held liable.
How soon you could become liable for your loved one
Firstly, it doesn’t matter whether you’re married or not. A common-law union has the same legal and liability implications as a marriage. This is the same for same-sex couples.
What does matter is time… but only the time you have lived together.
It’s often inaccurately thought that someone can have a call on your assets after as few as four months of co-habiting.
That’s not true. Generally, you must have been co-habiting for two years to be considered by the courts as financially inter-dependent.
But that’s another key point: ‘financial inter-dependence’.
You could be viewed as being financially inter-dependent (or having a financial obligation) earlier… in two circumstances:
the partnership has produced a child (which obviously creates an extra financial need) and
there has been a substantial contribution to the partnership by one party, for which there has been no financial gain.
Having said that, there are scary situations where ‘sexually transmitted debt’ is a danger to you far sooner – and from far wider sources.
When you could be lumped with your partner’s debts earlier
Your credit score is an individual thing – it doesn’t matter if your partner’s one is good or bad.
Or – at least – that’s the case until you want to jointly apply for a credit product or loan together.
And if you do list your names jointly on anything, from a utility bill to a home loan, you become liable for your partner’s non-payments.
Indeed, fully liable if they are refusing to meet you in the middle.
Missing a debt repayment on which you are listed by as few as 15 days, or a utility payment by just 61 days, will also push down your credit score.
The other huge danger comes from credit cards.
Now, a credit card can only be taken out in one name – and that credit holder is solely responsible for its repayment.
Be aware: if you decide to issue a second card to anyone else. While this sounds convenient you must trust them implicitly... and for always.
Where the liability could become frightening
There have been really concerning cases of debt being used as a ‘weapon’, and for revenge in a relationship that’s gone sour.
It’s particularly playing out when it comes to tax debt… debt that new partners are sometimes initially hiding.
The trouble is that where a financial relationship is proven, the courts can rule that tax debt is a joint liability – despite being accrued in one person's name.
There was even a recent heart-breaking case, reported by the ABC, of the court deeming this relationship began earlier than co-habitation, when a lady had let her sometime partner use her computer to draft a letter to the ATO asking to be put on a repayment plan.
“She did so and thought nothing more of it — but this small act of kindness would become a ruinous error,” the ABC reported.
That early involvement – before commencing a six-year de facto relationship – saw the court ultimately rule that the full debt, dating back 10 years, be factored into the property settlement.
It probably particularly applies to tax debts but it’s vital for you to stay at arm’s length from any of your partner’s existing debts. And that could also mean staying at arm’s length from them until you see actual evidence these have been discharged.
Bottom line
Your money decisions with your ‘honey’ are vitally important.
Are you on the same page with your use of it? And do you want to achieve the same things by mobilising it?
Two people who co-habit can achieve great financial things together… because they can split living expenses such as groceries, energy and other utilities.
But someone who is bad with money and/or debt could derail your financial future.
So what can you do if you find yourself in this sad situation?
As I’ve said, you’re going to need to repay the shared debts.
And you’re going to have to notify and note on each of them on your credit file, if there is more than one, that wasn’t accrued by you.
There’s not much other recourse – except through the courts… and we’ve talked about that.
Be careful before combining households… and consider a binding financial agreement first.
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Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
