When you enter into a formal debt solution like a Trust Deed, it’s natural to wonder about the potential impact it could have on the people close to you, such as your partner, and whether it could have a knock-on effect on their finances.
Essentially, a Trust Deed is a formal debt solution designed to help individuals in Scotland manage and pay off their unsecured debts. Because it is legally binding, there are specific terms and conditions that you and your creditors must follow.
In this article, we’ll outline the various ways in which a Trust Deed could affect your partner, including how it can affect any joint assets you have and the potential legal implications you should be aware of.
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What is a Trust Deed?
A Trust Deed is a legally binding agreement between you and your creditors (the people or businesses you owe money to) to repay your debts through a series of monthly payments based on what you can comfortably afford.
Most Trust Deeds last four years but your term can be extended if your circumstances change during your arrangement. During this time, your credit score will be negatively affected and you’ll struggle to access most forms of credit, including a mortgage, loan, and phone contract.
When the majority of your creditors accept the terms of your Trust Deed, it will become a Protected Trust Deed (PTD). With Protected Trust Deeds, your creditors can’t contact you, ask you for payment, take legal action against you, or add interest or charges to your debt.
During a Trust Deed, your assets will be transferred to a ‘Trustee’ who will oversee your arrangement and distribute your monthly payments among your creditors.
How will a Trust Deed affect my partner?
If you’re in a Trust Deed, you may be curious about how it could affect your partner and their finances. Thankfully, your partner isn’t legally obligated to pay any of the debt owed and should remain unaffected.
The only way your partner will be affected is if you have joint finances or assets. For example, if the debt included in your Trust Deed is a joint debt and you can’t afford to make payments, your partner will become solely responsible for paying the full amount owed.
Similarly, if you own property with a partner, there could be implications for home equity and ownership if you’re required to sell assets to pay off your creditors. Your Trustee will, however, need to get permission from the other owner of the property before they can put any formal arrangements in place.
Any monthly budgets you share with a partner are also likely to be affected as your monthly payments will be based on your disposable income. This could alter the dynamics of shared household expenses and savings and lead to miscommunication or conflict if not discussed beforehand.
You can’t have a joint Trust Deed in the same way you can have a joint Debt Arrangement Scheme (DAS). You can, however, enter into two individual Trust Deeds as long as there is enough qualifying debt in each application.
How will a Trust Deed affect joint assets?
When entering into a Trust Deed, it’s crucial to understand how any assets you own with a partner, such as a home or a bank account, might be affected.
For joint property, for example, your Trustee can seek to release your share of the equity but the co-owners rights are typically protected and their consent is often required before a sale can occur. However, if you have little or no equity, the Trustee may decide that it’s not worth including it in the arrangement.
For bank accounts, on the other hand, the funds in the account are likely to be divided according to ownership share, affecting your access and control over these monies.
Will my partner’s finances be included in my Trust Deed?
When entering into a Trust Deed, your partner’s finances may become intertwined with the process, especially if you have joint financial products or shared assets.
Your Trust Deed will not directly affect your partner’s credit rating. However, if you have joint loans or mortgages, lenders may scrutinise your partner’s creditworthiness more closely.
If you hold a joint mortgage or loan, your payment history may reflect on your partner’s credit report and the lender may seek full payment from your partner if you don’t pay.
Your partner is not legally responsible for debts that are solely in your name. However, if you have joint debts, your partner will be liable for the full amount should you be unable to fulfil the repayment obligations.
Remember, any assets in joint names could be at risk of being included in your Trust Deed, which may lead to shared assets being sold to contribute towards your debts.
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Do I have to inform my partner of my Trust Deed?
There is no legal requirement to inform your partner of a Trust Deed and there is nothing stopping you from completing your arrangement without your partner or spouse finding out.
However, while you don’t have to tell anyone about your Trust Deed if you don’t want to, this route isn’t recommended. Being open and honest with your partner about your financial situation can provide some extra support and help you feel less alone.
The only time your partner will be informed of a Trust Deed and could be required to make payments is if the arrangement includes joint debts that they are also a part of. In this case, your creditors could approach your partner and ask them to contribute their share of the debt.
Are there any legal considerations I should be aware of?
When establishing a Trust Deed, it’s crucial to understand how it may interact with your partner’s rights and responsibilities. This affects assets and control over property and could have implications for both parties involved.
Trustees are legally bound to manage the trust’s assets in a way that is in the beneficiaries’ best interest. They hold the following powers:
- Legal ownership: Trustees hold title to the property on behalf of the trust
- Decision-making authority: They have the right to make decisions concerning the management and disposition of the trust property
Your partner’s legal position may also be affected, particularly if you are not married or in a civil partnership.
For example, if property is jointly owned, your partner’s consent may be required for certain actions.
Your partner’s separate assets will, however, typically remain unaffected by the Trust Deed unless they have provided personal guarantees.
Understanding these legal structures ensures all parties are prepared for the implications that a Trust Deed may introduce into the relationship.
What are the long-term consequences of a Trust Deed?
Entering into a Trust Deed may indirectly affect you and your partner’s financial future in the following ways:
Future credit and borrowing
Your credit rating will be impacted by a Trust Deed, which typically stays on your credit file for six years from the start date. During this period, entering into a new credit agreement will be challenging and the interest rates you are offered may be higher.
Lenders will use credit reference agencies to access your credit report and will see a Trust Deed as evidence of past financial difficulties, which can influence their lending decisions. This means any credit applications are likely to be declined or offered with less favourable terms.
Recovery and resolution
Post-Trust Deed, your ability to recover a good credit standing requires consistent financial behaviour. Steps to rebuild your credit score include timely debt repayments and careful financial management.
Your partner’s credit rating is separate but joint financial products will be affected. If you have any joint mortgages, loans, or bank accounts, for example, these could be scrutinised or impacted by your Trust Deed.
Credit Card Bank Loan £13,420.00 Collection Agency £4,715.00 Payday Loan £1,152.67 Rent Arrears £477.00 Council Tax £279.04 Example case completed in 2023. Repayment calculated using income and expenditure data. Monthly payments and write off percentages are based on individual circumstances.Here’s an example of how we can help.
Let's say you owe...
Total amount owed:
£22,707.91
After a Trust Deed
Conclusion
One of the most common concerns among those entering into a Trust Deed is how it may affect their partner or spouse both personally and financially. However, your Trust Deed will have no effect on your partner unless your arrangement includes joint debts that they’re also a part of.
Before agreeing to a Trust Deed, it’s important to do your research to ensure you fully understand the long-term implications and risks involved. Each Trust Deed is unique and the effect it has on you depends on your financial circumstances.
If you need tailored debt advice or would like to discuss Trust Deeds or any other Scottish debt solutions in more detail, don’t hesitate to get in touch with one of our expert advisors on 0800 043 1320.
