Managing Relationships (from a legal point of view) Part 3 by Peter Nevile

STDs and how not to catch them

For those who have recently exited or been ejected from a relationship, increased 'activity' with multiple partners often follows, bringing increased risks.

Absolute protection from risk may be achieved, rather drearily, by complete abstinence, but before you jump to the wrong conclusion, let me make it quite clear I am talking about Sexually Transmitted Debt.

In this article I want to look at how it occurs and how you might best protect yourself from it.

STDs occur as a result of joint activity… in the financial arena. It may arise from joint borrowings for example or more insidiously from simply signing a personal guarantee.

There is a favourite legal maxim " A guarantor is a fool with a pen" . This should become your mantra and chanted over and over again. This earnest recitation may transport you more quickly into debt free nirvana.

Let me firstly make a few comments about the principle of joint borrowings.

If you agree to borrow say $300,000 by way of a mortgage with one or more other people or take some other form of credit in more than one name, then almost certainly your liability will be considered to be both joint and several.

ie. Each person will actually be liable for the whole amount. In real life terms, if your partner skips town, goes bankrupt or is unable to pay for a whole host of reasons, you are immediately liable for the whole debt not just your half.

If you find this situation unpalatable you can of course find a new partner or alternatively, adopt a new strategy to borrowings.

The solution and best path to protection is to leave out the 'joint' bit. That is, each of you borrow in your own name ie. Severally, but not jointly.

This is not always easy to achieve, but I strongly recommend you seek expert advice to make it happen. This option does not generally appeal to banks, which you may have noticed are not exactly struggling with their profits. Therefore seek your advice from someone other than your friendly banker.

Now for guarantees! The insidious thing about a guarantee is that the best you can hope for, is not to have

to make any payments. Usually you derive no direct benefit and often you have absolutely no control over the events which may make you liable under the guarantee.

In short - no upside for considerable downside risk. In addition most guarantees, on closer inspection, are actually indemnities as well.

In effect you are liable to pay irrespective of whether the borrower defaults on payment and without the lender having to take one step to chase the defaulting borrower. Nice work if you can get it.

To add insult to injury you may also get the privilege of paying interest at a penalty rate …no prize for guessing that rate is considerably higher….not to mention all associated legal costs and any other costs which can be attributed to the default. Still interested in signing that guarantee? Well in some cases it is or was simply unavoidable.

There are those who unfortunately have already been STD infected, as it were, during the relationship. It may also have been a contributing factor to the relationship's demise.

For such unfortunates, I offer my sympathy. However eminently more useful is my advice. It is critical that you immediately seek advice on the best course of action to limit your continuing exposure and if possible to terminate it.

There are situations where the terms of the loan have been varied without the consent or knowledge of the guarantor. In some situations this can prevent the lender relying on your guarantee.

In short if you sign up as a guarantor you are exposing yourself to financial liability.

For those who find themselves in a position where they are unable or unwilling to resist the temptation of exposure, let me give you a few tips.

You will all have heard the stories about parents losing their house or farm as a result of providing a personal guarantee for one of their children who is setting up a sure fire business, which eventually failed to fire surely.

These are not stories but true events. They really do happen. One of our most eminent Judges, now deceased, was made bankrupt as a result of a personal guarantee given to an Oil Company, to support his parents' business. The Oil Company was even less sympathetic than the bank, if you can believe that.

If you must provide a guarantee, first recite the mantra and if for some overwhelming reason, debt free nirvana has no appeal, then quickly seek legal advice before signing the guarantee and work out how you may be able to limit your exposure. The damage is done when the ink-stains are dried on the line!

In the next article I plan to look at Powers of Attorney in their various forms. Do you want to live as a vegetable or would you contemplate giving someone you trust the power to turn off the life support system?

The comments above are to raise issues and do not constitute legal advice. The information cannot be relied upon in making an informed decision. Legal advice must be sought.

Peter's law firm, Nevile & Co, offer a brief initial consultation at no charge to clients of Entre Nous to discuss any of the issues raised in this or subsequent articles and also matters relating to business commercial matters, property and intellectual property. He may be contacted on 9664 4700 or nevileco@nevile.com.au


Nevile & Co. Solicitors
Level 11, 100 Collins Street
Melbourne VIC 3000
(03) 9664-4703

Keywords: Relationships, life support, debt, STD, sexually transmitted debt, going guarantor, personal guarantee, increased risks, joint borrowing, borrower defaults