Living Together in NC? What Happens to Your Debt If/When You Break Up?

Protect your finances in case of a bad break up

Image source - Flickr User Satish Krishnamurthy

A decade or so ago, when things got serious between a man and a woman and they wanted to make a commitment, they got married. But these days, living together is often an interim step between boyfriend/girlfriend status and saying “I do.” And sometimes, the I do's never come – either because the couple choose to cohabitate without matrimony or because they break up.

When a husband and wife take on debt together or one takes on debt for the other, then break up, divorce lawyers and the court takes care of sorting out who should pay what. But when you're living together and split, there is no such mechanism to sort out your debt issues. And if the break up is less than amicable, this can cause major financial woes that can haunt long after a broken heart has healed.

How to Handle Debt and Bills While Cohabitating

Today we'll give you some advice on how to handle mutual debt when you're living together. First, the conventional advice is to not take on joint debt. If you each have your own credit cards, bank account and car loan, this makes it simpler in case you break up. But when you're in love and everything is going well in your relationship, making a plan for what will happen when you split seems bleak.

One solution is to mix to some extent. For instance, open a joint bank account but keep your individual ones as well. Have your direct deposit sent to your individual account then transfer money over to the joint account for shared bills. Pay your rent, utilities and household expenses out of the shared account. If one of you is earning much more than the other, you may want to share in proportion to earnings.

Second, know that joint credit cards can be a bad idea, but so can running up debts for the other person in the relationship on cards in your name. If you do this and you split up, you could be left dealing with 100% of that debt even if it wasn't for stuff for you. Instead, keep your personal card(s), only charge stuff on it for you and if your partner really needs something, loan them the money instead of charging.

Third, for a major debt like a mortgage, it depends on your situation. If you're a good earner and can afford to pay the mortgage without your partner, you may want to take it out in your name alone. If the payment is large enough that you must pay it together, taking the loan out together may be your only choice. If you do break up, divvying up who gets to keep it and how that person will pay it alone can be a challenge, especially if the market is down and you can't sell it to get rid of the debt.

How to Prevent a Money Mess in Case of a Break-Up

North Carolina doesn't offer a court recognized option like domestic partnership or a civil union for unmarried couples that are cohabitating. In order to protect your financial interests, particularly if one of you has much more in assets, is more in debt or has much greater earnings, executing a contractual agreement prior to moving in together is smart.

While it sounds terrible to negotiate the money aspects of your relationship and what will happen in case of a split, it's much easier to work these things out when you're still very happy with each other. When you're in the midst of an ugly break-up, it will be much harder to be reasonable about money, debt and who gets what. Some of the items to address in your cohabitation agreement (also called a living together contract) include:

⇒ How property you owned before moving in together will be treated

⇒ How debts that pre-exist your moving in together will be treated

⇒ How property bought jointly and individually while living together will be treated

⇒ How your living expenses will be divvied up for payments

⇒ How any gifts you give each other will be treated if you split

⇒ How your assets will be treated if either of you die while living together

Chapter 7 bankruptcy may be the best way to get yourself clear of accumulated debt that you got into because of your ex. A note of caution about bankruptcy after a non-marital break up is that if you signed jointly for credit and one of you files bankruptcy, the other person becomes wholly liable for the debt and will be pursued by the creditor for payment.

To find out more about getting a financial fresh start after a messy break up that left you with a mountain of debt that you can't afford to pay after a break up, contact the law offices of John T Orcutt for advice on North Carolina bankruptcy.