Must my debt-free son take on wife-to-be’s hid­den bor­row­ing?

The Daily Telegraph - Your Money - - MONEY -

My son, who is debt-free, plans to marry for the first time. But it has come to light his in­tended has not been en­tirely hon­est, re­veal­ing debts of over £40,000. If they wed, do those fi­nan­cial obli­ga­tions legally be­come my son’s? JM, VIA EMAIL Sadly your son’s sit­u­a­tion is far from unique. Bri­tish adults are hid­ing £70bn in debt from their part­ners, ac­cord­ing to a re­cent sur­vey, which sug­gested 16pc of re­la­tion­ships har­bour se­cret bor­row­ings, av­er­ag­ing £8,300 each.

Brits have re­lied heav­ily on cheap debt in the decade since the 2008 fi­nan­cial cri­sis, as wages stag­nated. House­hold bor­row­ing is now at lev­els not seen since the Eight­ies, of­fi­cial data has found.

Tellingly, the re­search sug­gests al­most half a mil­lion peo­ple would have split from their part­ner if they had been made aware of their fi­nan­cial skele­tons.

Lara Mardell, se­nior as­so­ciate at law firm Bir­cham Dyson Bell, said legally the risk is limited. “In law a per­son’s debts are their own. Your son does not take on his wife’s by get­ting mar­ried.”

But Ms Mardell warned your son to probe the type of debt. A hefty stu­dent loan be­ing paid off grad­u­ally is no great con­cern, or £40,000 owed with a good in­come or sig­nif­i­cant as­sets.

“Un­man­age­able credit card debt, how­ever, risks her credit rat­ing, and the like­li­hood of a joint mort­gage,” Ms Mardell said. “If they get a joint mort­gage and she can’t pay, your son is on the hook for it all. He should con­sider a mort­gage on his own, at a level he can af­ford on just his in­come.”

In that case Ms Mardell said your son is well ad­vised to keep his money sep­a­rate. If a joint ac­count is needed, use it just for those ex­penses and de­posit only agreed funds each month. Your son keeps con­trol of his cash, and the po­ten­tial for ar­gu­ments falls.

En­sur­ing your son’s credit rat­ing is pro­tected is an­other con­sid­er­a­tion. Ms Mardell said: “If his wife fails to pay util­ity bills or other joint li­a­bil­i­ties, this could hit his rat­ing. Sug­gest he keeps bills in his own name so he can en­sure they are paid.”

Di­vorce could bring all this to a head. Ms Mardell said the courts have a lot of dis­cre­tion to share mar­i­tal as­sets and de­cide who must shoul­der the bur­den of any debt. Courts’ pri­mary con­cern is to en­sure chil­dren’s wel­fare.

“Of­ten this means the fi­nan­cially weaker party, nor­mally the mother, the chil­dren’s pri­mary carer, re­ceives a ma­jor­ity of the as­sets to meet the chil­dren’s needs and pay off her oth­er­wise un­af­ford­able debts,” Ms Mardell said.

Fi­nally there is the gen­eral ques­tion of trust. Ms Mardell ad­vised that, if your son feels his wife has kept im­por­tant in­for­ma­tion from him, it would be a very good idea to ad­dress this now to help es­tab­lish health­ier “ground rules” for this would-be happy cou­ple. be­tween 1996 and 2016. They make up 3.3 mil­lion of Bri­tain’s 19 mil­lion fam­i­lies.

Soar­ing prop­erty and rental prices in that time, es­pe­cially in Lon­don and the South East, make it in­creas­ingly cost-ef­fec­tive for cou­ples to move in to­gether.

Ad­dress­ing who owns what in this boom in less tra­di­tional liv­ing is an awk­ward grey area.

Cathy Beau­mont, mort­gage ad­viser at Lon­don Money, said where only one party owns the home you must con­sider the “what ifs”.

She said: “Your new part­ner may con­trib­ute to the mort­gage or even pay it, and live there for years with­out be­ing named on the deeds. If the re­la­tion­ship sours they usu­ally have no right to a share, but it can get messy.”

De­spite the law be­ing gen­er­ally on your daugh­ter’s side, Ms Beau­mont said the non-own­ing part­ner may ob­tain the right to live in the home, pre­vent her liv­ing there or se­cure part of the pro­ceeds when it’s sold, if they can show they’ve con­trib­uted. Mov­ing some­one in also means telling your lender. Ms Beau­mont said: “Any oc­cu­pier over 17 years old not on the mort­gage will be asked to sign an oc­cu­pier’s waiver con­sent form. If the bor­rower de­faults, this en­sures the lender’s in­ter­est is the pri­or­ity, so those not named on the mort­gage can’t con­tinue liv­ing in the prop­erty.”

Ms Beau­mont is firm: your daugh­ter should seek le­gal ad­vice on own­er­ship from the out­set.

“This may be un­ro­man­tic but she as the owner needs to be pro­tected,” Ms Beau­mont said. “Equally, her part­ner should be sure where they stand. A Dec­la­ra­tion of Trust can re­solve many of these is­sues.”

He­len Marsh, part­ner at law firm Forsters, agreed you should be wary for your daugh­ter.

“No one au­to­mat­i­cally ac­quires rights in a prop­erty just be­cause they live or have lived in it with their part­ner,” Ms Marsh said, adding, “But there are ex­cep­tions to this and your daugh­ter can avoid these pit­falls.”

Ms Marsh rec­om­mends your daugh­ter and her boyfriend draw up a “co­hab­i­ta­tion agree­ment”.

“This should de­tail if he is pay­ing her rent or con­tri­bu­tion to­wards costs, whether they ex­pect he will ac­quire a right to oc­cupy the prop­erty, or an in­ter­est in it, who will be pay the bills, what will hap­pen if she wants him to move out, and whether fur­ni­ture will be jointly owned, or ear­marked as owned by one or other of them.”

A co­hab­i­ta­tion agree­ment need not be com­pli­cated, but must be clear, and signed by them both, Ms Marsh said, ide­ally with the help of a spe­cial­ist so­lic­i­tor so your daugh­ter is fully aware of the is­sues and risks.

“If she is re­luc­tant to do that, make sure as a min­i­mum she has the con­ver­sa­tion with her boyfriend and gets some­thing down in writ­ing,” Ms Marsh said.

One pit­fall to be aware of in par­tic­u­lar: the eas­i­est way for your daugh­ter’s boyfriend to demon­strate he has ac­quired an own­er­ship right in the prop­erty is by con­tribut­ing to the mort­gage, or the cost of build­ing work. To avoid this, any fi­nan­cial con­tri­bu­tion from him should be un­der­stood by them both to be rent and/or to­wards bills, and not “to­wards the mort­gage”.

Ms Marsh said: “Oth­er­wise he could be­come en­ti­tled to a pro­por­tion­ate share in the flat.”

Al­ter­na­tively, Ms Marsh said your daugh­ter could draw up a sim­ple lodger agree­ment, mak­ing the le­gal re­la­tion­ship be­tween them clear, and deal­ing with many of the is­sues above.

“How­ever a land­lord/ten­antstyle re­la­tion­ship may not be quite what she had in mind when set­ting up home with her beloved,” Ms Marsh con­ceded.

If your daugh­ter has a mort­gage, she would need to no­tify her lender and pos­si­bly get their con­sent to a lodger.

Ms Marsh said: “Wis­est is for your daugh­ter to see a so­lic­i­tor on her own; they will not ad­vise her and her boyfriend jointly.” To en­sure an agree­ment is en­force­able, the boyfriend should get his own le­gal ad­vice.

Your daugh­ter and her boyfriend should dis­close their re­spec­tive fi­nan­cial po­si­tions as part of the agree­ment.

Ms Marsh ad­mit­ted none of this is very ro­man­tic. “But do­ing this now could save them both a huge amount of cost, heartache and le­gal fees in the fu­ture.”

Our ex­pert re­porter

an­swers read­ers’ ques­tions. This week: love or money? ‘A joint mort­gage she can’t pay puts your son on the hook for it all’

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