As we hit the season of Christmas parties and New Year bashes, many Money Academy readers are probably thinking about 2012 financial resolutions, budget gifts and how to whip up a frugal feast for 25th of December. Some of you may also be fearing that annual call from a family member in financial trouble, or dreading watching nieces and nephews unwrap gifts you know their parents can’t afford. But some people may have a dirty little financial secret that’s even closer to home.

Sexually-transmitted debt (or relationship debt) is debt you “catch” from your boyfriend, girlfriend, partner, or spouse by:

*Lending them money

*Acting as guarantor for a loan

*Taking out a contract or loan for them, perhaps for a mobile phone or a car

*Sharing a bank account or credit card on which they run up debts for their benefit

There are a variety of reasons people end up with relationship debt:

Wanting to help. Where there’s a big disparity in income or someone isn’t good at managing money, what would be more natural than wanting to help out? If the person you love loses their job or has unexpected bills and you have the money to help, you may freely chose to help them through a difficult patch, even going in to debt to do so.

Wanting to be loved. I have one friend who has put herself in debt to lend money to boyfriends on two separate occasions, and they both turned out to be deadbeats. Would it surprise you to know she has issues with low self-esteem? Sadly, there are people who think that the only way they can keep Mr. Right (or Ms. Right) is if they buy them lots of expensive stuff or act as their own personal ATM. I’ve also known people who seem to believe they’re not good enough to deserve someone who is both loving and financially solvent.

Optimism. Does anyone ever co-sign on a loan expecting things to go wrong? Love is blind… and sometimes just a little stupid. If your spouse is slaving away in a job she hates but dreams of starting her own business, it might seem like a really good idea to pony up with the cash to help her realize her dream. She might even strike it rich, in which case you’re both living on easy street. The question is whether you’re applying the same hard logic to her big idea as you would to your other investment choices. Even where there’s a clear history of poor financial management, people in love can delude themselves that this time their partner has really changed.

Intimidation. Sometimes people — generally women — are threatened, forced, or emotionally blackmailed into debt. It can involve actual physical violence, threats of violence towards others, threats of self-harm, threats to end the relationship, or emotional blackmail about the consequence of not providing the money (e.g., “If you don’t help me pay my car loan, I’ll lose my car and my job”). I worked for a housing organisation many years ago where we helped a woman who had been seriously injured at work and received a substantial payout; her violent husband had forced all the money out of her, then left with another woman. Sadly, not all people who end up with relationship debt do so freely.

Ignorance. Some people don’t know what they’re signing. In one study, researchers found that many people who co-signed a loan thought they were responsible for half a loan, when actually each party is responsible for all of it. Or they thought they were signing a reference rather than a guarantee. Even where they did understand that they were acting as a guarantor they didn’t always understand the implications, that they could lose their house if the primary borrower defaulted on the loan.

Gift to loan. There have been many legal cases where people have tried to reclaim gifts given during relationships. When writing this, I remembered that I had once provided financial support to my boyfriend. He worked for a non-profit that had its budget cut and to stay afloat everyone had to take a pay cut. So as a couple we agreed that we would divide rent and utilities in proportion to what we earned, rather than 50/50. There was no expectation that he would re-pay this money and we’re still happily together more than ten years later. But if we had broken up or — god forbid — I had caught him with a strumpet in a bed I was subsidizing, perhaps I would have felt differently and demanded he repay me. So some relationship debt doesn’t start out that way, but becomes part of the baggage when a relationship ends poorly.

How can you keep yourself protected from sexually-transmitted debt? Here are few suggestions:

Openly discuss your attitudes to spending. As with that other type of STD, trust and communication are key. If you can’t agree on financial priorities then use financial “contraception” by keeping your accounts and financial lives separate until you get to know each other a little better.

Work out if shared bank accounts are a good idea. In a long-term relationship, joint accounts enable you to have visibility of each other’s spending. However joint accounts will create resentment if you have very different attitudes to money and spending. Many long-term couples find it works better to have separate bank accounts, including J.D and his wife, Kris. So don’t assume that a long term relationship means sharing everything if it doesn’t work for you.

Work out what expenditure needs to be agreed in advance as a couple. If you’re a committed couple and you’ve chosen to spend your life/finances together, you might want to agree an upper limit for spending without needing to discuss it beforehand. For example, 73% of people in a recent survey said it was unacceptable to spend more than $100 without checking with your partner — which leaves 27% of people happily spending more than $100 without feeling it necessary to share this information. This is okay if that 27% are all dating each other. However, if one member of a couple thinks it’s fine to spend $1000 without discussion and the other thinks all expenditure over $100 should be discussed in advance, then I predict a rocky road ahead.

Monitor joint accounts. If you’re both responsible for an account, then you should both be responsible for monitoring what goes in and out of it. This means you should both have access to statements and online or telephone banking facilities. Actually, everyone should be keeping an eye on their accounts, as it’s a good way to avoid general fraud and monitor your expenditure.

Read anything you sign. Know what you are getting into and be clear about the implications. If the love of your life isn’t honest about what they’re asking you to sign (or they don’t understand it) then you probably shouldn’t be lending them money. Also, if you cannot afford the implications of things going wrong then don’t lend money or act as a co-signer.

Try to be objective. This may be really hard, but try to be objective in love when it comes to lending money. If Ms. or Mr. Right can’t get credit, maybe the credit agency knows more about their past than you do.
Be clear about gifts versus loans. If you have freely and willingly offered to pay for your partner’s education or buy them a car, then I’m not sure it’s fair to try and reclaim it when things go badly. But equally, if money is only being provided as a loan be clear about the terms and get it in writing.

Leave. If financial demands are part of a violent or otherwise abusive relationship, then leaving is probably a very good idea. If your significant other threatens you to extort money, or you feel unable to say no to their requests, get out now or think about building up some savings they don’t know about for your own safety.
If things do go badly, you’ll need to take action when a relationship ends, such as closing joint bank accounts and credit facilities. Move your income into a separate account and, if you move out, get your name taken off utilities. If you have a mortgage or loan, contact your bank to advise them the relationship has ended and make sure loan re-draw facilities are closed down and that any future decisions require joint signatures.

If all you’re left with is fading memories and debt, you really have two choices.

You can go after the debt hard. Get your ex to agree in writing what they owe you and draft a realistic plan for paying the money back. Ask them if they can borrow money from another source to repay you. If it’s a joint loan see if you can get the terms changed so that you are not longer liable. There’s also the option of pursing the matter in the small claims court, but that’s going to have a big impact on your relationship with your Ex and you will need proof any money was a loan not a gift.

The other alternative is to write it off completely. I’ve seen friends who have put their financial and emotional lives on hold because they’re owed money they will probably never see again. Rather than setting their own financial goals, amending their savings plan for single life and moving on, they put everything on hold because when they get the money back that will sort out all their problems. So sometimes it is worth chalking it up to experience.

by J.D. Roth