Will a Trust Deed affect my partner?

What happens to joint debts and assets in a Trust Deed?

A common and understandable concern for many people considering a Trust Deed is what impact it will have on their partner. If you intend to enter a Trust Deed, discussing it with them ensures transparency around your finances and should provide a ready supply of support, but how will it impact them?

Here we discuss how entering a Trust Deed may directly and indirectly affect your partner and what the impact on your jointly-held debts and assets will be.

What is a Trust Deed?

A Trust Deed is a legally binding debt repayment arrangement between you and the parties you owe money to (your creditors). It allows you to repay your debts in monthly instalments over a typical period of four years, and any debts you cannot comfortably afford to repay will be written off.

The Trust Deed becomes protected if half of your creditors or at least two-thirds by the total value of your debt agree to your proposal. In that case, as long as you make the monthly payments and stick to the terms of the agreement, your creditors cannot contact you requesting payment, add interest or charges to your debt or take legal action against you.

While the Trust Deed is in place, your credit score will be adversely affected and you may struggle to secure common forms of credit such as a loan or even a phone contract. However, it can still be preferable to Sequestration as it offers more flexibility, gives you more control over your assets and has a less severe impact on your credit rating.

If you enter a Trust Deed and all the debts are yours and yours alone, there will be no direct financial impact on your partner. They are not responsible for the agreement or contributing to the payments as you enter it in your name. They can also not be contacted or pursued by your creditors.

However, there are circumstances where your partner could be directly impacted. If you have jointly-held assets or debts, there could be serious implications that you both need to be aware of. We cover that in more detail below.

Even if you don’t have joint assets or debts, your partner is likely to be indirectly affected by you entering a Trust Deed. For example, your monthly Trust Deed payments will restrict your disposable income, impacting your household spending and reducing the money you have for discretionary items such as socialising and holidays. Potentially, that could become a source of conflict, which is why it’s best to discuss all the implications beforehand.

How are jointly held debts treated in a Trust Deed?

When you have a jointly held debt with a partner, you are jointly and severally liable for the entire debt. That means, rather than being responsible for half the debt each, you are both liable for the whole amount. So, if you cannot pay your share and enter a Trust Deed, the creditor can pursue your partner for the full repayment.

The same applies if you and your partner have separated or divorced. You may have an agreement about who is responsible for repaying a joint debt. However, if you enter a Trust Deed, all your debts are automatically included - you cannot pick and choose. When you enter the Trust Deed, the creditor will likely seek payment of the outstanding balance from your ex-partner.

The exception to this rule is if your partner also enters a Trust Deed. You cannot have a joint Trust Deed in the same way as the Debt Arrangement Scheme. However, if you both enter a Trust Deed, the creditor cannot pursue your partner for the balance and will have to wait for their share of the monthly Trust Deed payment.

How are jointly held assets treated in a Trust Deed?

Many people who enter a Trust Deed have jointly held assets with a partner. The most common example is a house, but vehicles can also be jointly owned. Partners often also share a bank account.

If one partner enters a Trust Deed, the funds in any jointly-held bank account will usually be split according to your ownership share. That means the funds of the partner who is not entering the Trust Deed will not be affected. However, not being able to access all the funds in a jointly held account could still impact their finances.

If you jointly own an asset, such as a property, as the partner entering the Trust Deed, the trustee can seek to release your share of the equity from the property for the benefit of your creditors. However, they will not usually be able to sell the home without your partner’s consent, and they will not be able to access your partner’s share of the equity or use it for debt repayment.

How will a Trust Deed affect my partner’s finances?

Even if you do not have any joint debts with your partner, there may still be an indirect impact on their finances. For example, if you have a joint mortgage, entering a Trust Deed could prompt the lender to look more closely at your partner’s creditworthiness. Your history of repayments could also be reflected on your partner’s credit report, which may make it more difficult for them to access credit in the future.

Should I tell my partner about my Trust Deed?

Given the impact a Trust Deed can have on your partner’s assets and finances, it’s usually best to be open and honest about your situation. There’s no legal requirement to tell them, but it will give them a better understanding of the financial restrictions you face. It also removes the risk of awkward conversations if a creditor asks them to repay a jointly-held debt in full.

Need advice?

If you are considering a Trust Deed but are worried about the impact it might have on a partner, or want to discuss Trust Deeds or any other Scottish debt solution in more detail, please contact our team. You can call our confidential advice line on 0141 736 0583, use our live chat facility or arrange a meeting at one of our local offices.