We like to think that we will meet ‘the one’ and live happily ever after, but reality says different. It is nice to think that when you are together your finances should be combined – well you both trust the other don’t you…? – but in fact it is better for both of you to maintain your own finances independently.Joint finances might work while you both do – but if you split…? what are the implications of joint and several liability?
These days with the recession, the priority for many couples will be sorting out debts and other joint liabilities, such as household bills. Many people do not realise that with joint loans, overdrafts or credit cards, both parties are liable for the full amount. This is known as “joint and several liability”. It means that if, for example, you have a £10,000 loan with your ex-partner, you will not owe £5,000 each — you will both owe the full amount.
Joint and several liability can also apply to rent or mortgage arrears, as well as council tax, utility and other household bills. It is, therefore, important to ensure that your name is removed from all bills before moving out of the property. An old partner’s finances may also have an impact on your credit rating. If a couple share any form of joint bank account or credit, such as a loan, this “financial connection” will appear on both party’s credit ratings.
If your partner or ex-partner has a bad credit rating and you have a financial connection with them, this will have an adverse effect on your rating as well. This is why it is very important to keep your finances totally separate for at least six years from when your partner had debt problems — since it takes that long for their record to become clean again. Once you have severed all financial connections from your partner, you can write to a credit-reference agency — Experian, Call Credit or Equifax — to “dissociate” yourself from your ex. The agency will share this disassociation with the others, so only one needs to be contacted.
Also remember that your ex-partner will have access to any savings and current accounts in joint names. So it is vital to ensure these assets are divided fairly at the outset of a separation.
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If you will admit it you would not be the only parent to have broken into junior’s money box at some stage when you have needed a bit of extra change. I’ve done it for sure but my kids have definitely profited more than they have lost over the years…