Few people who borrow jointly with a partner, a family member or a friend truly understand how this sort of debt works. You may believe that the debt is a 50/50 or a 70/30 obligation because of your private arrangement, however this is not how your lender or the finance industry in general would view your obligations.
If your partner goes bankrupt or stops paying their share
While you are both making your payments to the lender as required all is well. If your partner stops paying their share, then this becomes your problem. It does not matter if they have lost their job, have decided to declare bankruptcy or have simply disappeared, if yo have jointly taken out a loan (car loan or a mortgage are the most common forms of joint finance).
The lender will simply transfer the burden of the full loan on to yourself. This is unfortunate given that you do not automatically qualify for the ownership of the balance of the asset that secures this loan. Therefore in the case of a mortgage taken out jointly. You will be required to maintain full payments if your partner stops, however they will retain in law their share of the property. If you decide that this is not fair and only pay your own share, the loan will automatically go into arrears, your credit history will be damaged and you are at risk of having your security property repossessed.
If you apply for another loan
If you apply for another loan while holding a joint mortgage or a joint car loan, the new lender will not care that you are responsible for only 50%v of this mortgage. They will calculate your loan affordability as if you are responsible for 100% of this loan. This is because if your partner defaults, you may become responsible for the full amount. Hence having a joint loan will automatically reduce your borrowing power for any other forms of finance.
Your partner dies
Have you considered what would happen if you or your partner dies? In a family scenario spouses often pre-plan with life insurance, mortgage insurance and the like. The legal position in the case of joint asset ownership or a joint mortgage is that unless you have specified what you want to happen if this occurs, you may find that you are forced to sell the asset by your partner’s estate administrator.
If you venture on the path to joint borrowing or joint asset purchases it may be worthwhile to document with a solicitor how you want your joint assets to be treated if one of you dies. For example, yo may want to have your property valued and got the first opportunity to buy it out and take a mortgage in your own name only. However, if this is not legally defined the property may need to go to auction.
Unfortunately once the lender finds out that your loan partner is no longer there they may decide to call in the loan and force a property sale themselves.
When planning to take on joint debt, you need to be aware of the implications both financially and legally of doing so.