Love: At What Cost?

Take Charge America Offers Advice for Handling Relationship Debt

PHOENIX, Ariz. (November 30, 2004)…Many Australians refer to it as “sexually transmitted” debt; here in the United States, it is often referred to as “relationship” debt. Regardless of what you call it, any debt procured by a spouse or loved one has the potential to affect us all and is becoming a growing problem throughout the nation. Chances are, if you aren’t a victim, you may know someone who is. The good news, though, is that relationship debt can be treated and prevented.

Relationship debt may be invading your home and you may not even know it. Mike Sullivan, director of education for Take Charge America, says that although relationship debt has not yet gained formal recognition in the United States, it is spreading quickly, and quietly, throughout the nation. Once this silent relationship debt is contracted, it is extremely difficult to remedy. For these reasons, Sullivan suggests that, as with any disease, consumers should take precautionary actions to prevent relationship debt before it’s too late.

Relationship debt occurs when legal responsibility for an incurred debt is transferred from one person to another. In most occasions, the unwary victim contracts this sort of debt directly from his or her partner, and becomes exposed to unforeseen and unintended financial obligations. Under these circumstances, guarantors (usually women) receive no direct financial benefit from the borrower’s loan, and often find themselves at high financial risk.

In relationship debt cases, if the initial borrower fails to meet minimum loan payments, the lender can demand that the guarantor repay the principal loan as well as any unpaid interest fees and penalties. If the guarantor is unable to meet this obligation, the lender can legally seek to collect any security, including the guarantor’s home, savings, or other assets.

Consider “Anna,” a 65-year-old Arizona woman who, ten years ago, began dating a younger man who needed funding for his many “inventions.” In the beginning, Anna “loaned” money to her boyfriend. Once the two married, Anna’s husband charged credit cards to the limit, forcing Anna to dig into her retirement funds to pay the bills. Anna also guaranteed a loan which her husband used to open a business that failed after 8 months.

The two divorced her after only three years, leaving Anna with over $10,000 in past due credit card bills and a $30,000 business loan.

Her retirement account was depleted. “I will be working for the rest of my life to catch up from these debts,” says Anna. “Worse yet, I have no retirement savings or husband to help out if I become ill or am unable to work.”

Relationship debt can happen to anyone – married or not – if financial dealings become intertwined with a partner. According to a recent 2003 study entitled, “Darling, Please Sign This Form: A Report on the Practice of Third Party Guarantees in New South Wales,” the majority of women who signed joint loans with their male partners did so willingly. Most such loans were undertaken to support family businesses, which were typically owned by the men. According to the study, guarantors generally agreed to sign the joint account for emotional rather than financial reasons. Other reasons provided by the study included trust in the borrower, misunderstanding or misinformation about the transaction, and individual pressure from the borrower or other family members.

Sullivan says that taking precautions to prevent relationship debt is important for everyone. “Consumers may have trouble dealing with the topic of relationship debt, especially when it comes to preventing it,” said Sullivan. “People in loving relationships may not be able to see themselves as potential victims, simply because of the trust they have in their partners. Nevertheless, couples need to realize that they must protect themselves individually just in case something should go wrong.” Sullivan offers the following tips for couples to safeguard and prevent themselves from succumbing to relationship debt.

Applying for Loans

• Good people can be bad with money. Of course your significant other is honest and trustworthy! But if he or she had great financial skills, you wouldn’t be getting asked for money.
• Do not guarantee any unsecured loans during the first seven years of a relationship. It takes time to establish a relationship and adding a financial burden on top of the other challenges can doom the relationship. Make sure everything else is stable and settled before risking financial assets.
• Determine who will make loan payments and from what source and watch it. If one’s significant other is supposed to make a payment from business proceeds on the 15th and can’t, that is a sign that the plan isn’t working and commitments aren’t being met. Failure to meet commitments dooms many relationships and most business plans.
• Don’t feel pressured. If you have to prove your love by making or guaranteeing loans, you are just like the 16 year old pressured for favors. Never give a loan under those conditions and never make those decisions in the heat of the moment. All loan commitments should be made before noon in the presence of unbiased witnesses.
• Limit your risk. Don’t guarantee an entire loan if the lender only needs a down payment or partial guarantee. Share risk as you share love.
• Understand all aspects of a transaction and read the fine print. While people in love want desperately to trust their partner, taking on financial commitment should not be undertaken with blinders on. Each person who signs the document needs to read and understand the document and the responsibilities he or she is agreeing to before signing.
• Make sure that the loan can not be amended without the guarantor’s knowledge. Many people with relationship debt problems find themselves in more debt than they ever imagined possible. Changes to agreements can sometimes be made solely by the borrower while arguably committing the guarantor.
• Seek legal advice. Hire an outside party to assess the situation before securing a loan. The lawyer will know the history of the loan and can help to minimize the damages if things go bad.

Financial Planning

• Remain fully involved and informed in all areas of financial planning. Don’t leave it to your partner. Couples must work together on financial decisions that will affect both of them.
• If joint accounts have been established, make sure that there are no opportunities for either party to abuse them. Read the fine print to understand the risk you may have through joint accounts, including overdraft risks and any additional fees that could be incurred. The phrase, “jointly and severally” liable for a debt means that if the borrower can not pay the debt, the other party on the account will have to pay it in full.
• Do not mix your credit histories. Consider having separate credit cards and, never put your name on an account where your partner has any outstanding debt, late fees or over limit charges. His or her bad credit history can pass to you, which can negatively affect your joint and individual future, especially when you attempt to buy a new home or car.
• Seek an independent financial advisor. People entering committed relationships with significant assets should have separate financial advisors. Make sure your financial advisor can be an advocate for you.

“Consumers need to be aware of the consequences of relationship debt, especially before signing loan transactions,” said Sullivan. “However, loans should be considered ONLY as a last resort after careful financial budgeting and planning has been thoroughly completed. By taking preemptive steps, relationship debt throughout the nation can be controlled and defeated.”

About Take Charge America
Founded in 1987, Take Charge America, Inc. (TCA) is a non-profit 501(c)(3) charitable organization headquartered in Phoenix, AZ. TCA is committed to helping consumers gain control of their finances and offers a variety of services including education, budget and financial counseling, and when necessary, debt management.

TCA also serves as an effective resource for the business community. We help financially distressed consumers re-organize their finances and return hundreds of millions of dollars annually to financial institutions, professional service providers, and businesses of all sizes and descriptions that may otherwise have been lost to the economy in bankruptcy. TCA’s diversified programs are utilized by tens of thousands of families and single men and women throughout the United States each year.