Debt warning for spouses in South Africa

 ·23 Mar 2024

South Africans often find themselves responsible for someone else’s debt, placing a substantial financial burden on their shoulders.

South Africans can unknowingly be responsible for someone else’s debt if they hold a joint account, co-sign a loan, or don’t understand the implications of their marriage contract.

“Co-signing a loan for a spouse, friend, or family member can be a generous gesture, but it comes with significant risk,” said Sarah Nicholson, operations manager of JustMoney.

“You’re essentially guaranteeing the loan and agreeing to repay it if the primary borrower defaults.”

“No one taking out a loan intends to slip into a precarious financial situation, but an unexpected retrenchment or illness could lead to you dealing with the financial fallout as a co-signatory. This can trigger a range of emotions, from frustration to fear.”

South Africans are liable for someone else’s debt when specific conditions are met, including:

  • If you’re married in community of property, or your antenuptial agreement specifies certain financial responsibilities

  • If you hold a joint credit card or account

  • If you add an authorised user to your credit card

  • If you’ve co-signed a loan with someone

  • If you stand surety for someone or sign a formal debt-settlement agreement

All debts incurred before and during a marriage form part of a joint estate, with each action of one spouse affecting the other.

Thus, if one is declared insolvent, both spouses are automatically sequestrated.

For those who marry out of the community of property, their estates remain separate, and any debt incurred by the spouse will remain their own responsibility.

“If you marry out of community of property, with accrual, debts will be considered on the
dissolution of the marriage, through either divorce or death,” said Erin White, a director at Crue Invest financial consultants.

“Debts you incur before you marry will be excluded from the accrual calculation. However, debts reduce the value of the assets to be shared if your marriage dissolves, so even though you would be protected from creditors, excessive debt would affect your share,” White adds.

For those who marry without an antenuptial agreement, they will automatically be entered into a marriage of community of property.

Limit the risk

For those co-signing a loan or similar debt agreement, JustMoney advises the following:

  • Financial stability: Assess the borrower’s ability to repay the debt. Do they have a steady income and a good track record of managing their money?

  • Communication: Discuss expectations and responsibilities.

  • Alternative options: Explore other ways to help the borrower, such as putting them in touch with a financial adviser, or helping them access alternative financing.

  • Legal obligations: If you do go ahead as a co-signatory, ensure you understand the legal ramifications, and your liability if the borrower defaults.

  • Credit card boundaries: As the primary account holder, you’re ultimately liable, so be sure to monitor the spending of any other authorised user and set clear guidelines.

Even with these precautions, one may still find themselves responsible for someone else’s debt.

There are, however, ways to manage this effectively, with JustMoney offering the following tips:

  • Assess the situation: Determine the amount owed, to whom it is owed, and details such as payment terms, interest rates, and deadlines.

  • Communicate with the creditor(s): Explain the situation and see if they’re willing to work out a repayment plan or negotiate a settlement.

  • Consider consolidation: If the debt is significant and you’re struggling, consider consolidating or refinancing the debt. This can help reduce your monthly repayments and make them more manageable.

  • Protect your credit score: Even if you’re not originally responsible for the debt, it could affect your credit score if it’s reported under your name. Monitor your credit report regularly and address inaccuracies.

Read: This is the average take-home pay in South Africa right now

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