Whether or not you can be made liable for your spouse’s business debts depends on a number of factors, including the legal structure of the business and the laws of the jurisdiction in which you live.
In general, if your spouse is running a sole proprietorship or partnership, you may be personally liable for the business debts.
This is because these types of businesses do not offer limited liability protection, meaning that the business owner(s) can be held personally responsible for the debts of the business.
If your spouse is running a limited liability partnership or Limited Company, your personal liability for the business debts may be more limited. This is because these types of businesses offer limited liability protection to their owners, meaning that the owners are generally not personally liable for the debts of the business beyond their investment in the company.
However, if you have personally guaranteed any of the business’s debts, you may be personally liable for those debts even if the business is structured as an LLP or Limited Company. It is important to seek legal advice if you have concerns about your personal liability for your spouse’s business debts.
Liability for Your Wife Or Husband’s Company Debts in the UK
In the UK, whether you are liable for your spouse’s company debts will depend on the legal structure of the business and your role in the business. If your spouse is running a sole proprietorship or partnership, you may be personally liable for the business debts. However, if your spouse is running a limited company, your liability for the company’s debts is generally limited to the amount of your investment in the company.
This means that as a shareholder, you are not personally liable for the company’s debts beyond the value of your shares. However, if you have personally guaranteed any of the company’s debts, you may be held personally liable for those debts.
It is important to note that if you are a director of your spouse’s company, you have legal responsibilities to act in the best interests of the company and to ensure that it complies with legal and regulatory requirements.
If you fail to fulfill these responsibilities and the company incurs debts or other liabilities as a result, you may be held personally liable for any resulting losses. It is advisable to seek legal advice if you are concerned about your liability for your spouse’s company debts in the UK.
There are some exceptions, however, as we’ll cover below:
Set up a Partnership
One obvious exception to this is if you’re in business partnership with your spouse and the debt is incurred to the partnership itself. In that instance, even if you had no part in the running of the business, you are what is called ‘joint and severally liable’ due to the partnership agreement.
If either partner took obtained a business loan via the partnership, for example, then a creditor could take either or both members of the partnership to court.
Partners are ‘personally liable’ for business debts incured by the partnership so, in this scenario, you could lose your assets, such as a house, if you can’t clear the debt.
Your Business Structure Does Not Offer Limited Liability
If your partner is a sole trader then he/she is not operating within a limited liability structure anyway, and there is hence no seperation between personal and corporate assets.
In this scenario a creditor, and potentially bailiffs on their behalf, can take possessions jointly belonging to a spouse, as long as the debtor is at least a part owner.
Co Signed Personal Guarantees?
It’s not uncommon for one partner in a limited company to require business finance and use a jointly signed personal guarantee as loan collateral. This approach is often taken by lenders to mitigate risk and increase the chances of loan repayment. However, it also means that the guarantor, typically the partner who did not require the loan, is liable to repay the loan in the event of default.
This guarantee is typically secured against the family house, putting the guarantor’s personal assets at risk. As such, it’s important for all parties involved to fully understand the implications of a personal guarantee before signing it, including the potential consequences of defaulting on the loan.
Joint and Several Liability for Debt
By default, neither partner in a marriage is liable for their spouse’s debt. However, if they sign a finance agreement together, they become jointly and severally liable for the debt. Joint and several liability means that each person is individually responsible for the entire debt. This means that if one partner defaults on the loan, the other partner will be held fully responsible for repaying the entire amount owed, even if they did not directly benefit from the loan.
As such, it’s important for couples to fully understand the implications of joint and several liability before signing any finance agreements. It may be wise to consider seeking legal advice before entering into any joint financial agreements to fully understand the risks involved.
Joint Bank Accounts Mean Credit History Will be Impacted
It’s important to note that setting up a joint bank account or having a joint mortgage can have implications for both borrowers, especially if one of the account holders experiences credit issues. If a joint mortgage falls into arrears, it will be reflected on both borrowers’ credit reports, which can impact their ability to obtain credit in the future.
The same applies to a joint bank account, where both account holders’ credit histories will be taken into consideration when applying for credit. If one of the account holders has a history of credit issues, it may be wise to keep accounts separate to avoid any negative impact on the other borrower’s credit report.
By keeping accounts separate, it ensures that each borrower’s credit history is only taken into account for their own financial transactions, reducing the risk of being penalised for someone else’s credit issues.
Frequently asked questions
In general, you are not liable for your husband's business debt, unless you have signed a personal guarantee. If you have jointly signed a loan agreement or given a personal guarantee, you will be held liable for the debt, putting your personal assets at risk.
In general, a creditor cannot come after you for your spouse's debts unless you are a cosigner or have otherwise jointly incurred the debt. However, in community property states, both you and your spouse may be held liable for debts incurred during your marriage, even if only one spouse incurred the debt. Am I liable for my husband's business debt?
Can a creditor come after me for my spouse's debts?
Conclusion
In the UK, the liability for a spouse’s business debts depends on several factors, including the type of business and the marital property regime. If the business is a limited company, the business and its shareholders are considered separate legal entities, and therefore, you as the spouse would not be personally liable for the company’s debts, unless you provided a personal guarantee or co-signed a loan.
If the business is a partnership or sole trader, and you are named as a partner, you could be held jointly responsible for the business debts. The legal framework in the UK does not recognize community property regimes. Instead, the legal ownership of property and assets is determined by the way they are held or registered. It’s important to carefully review any business agreements and consult with legal professionals to understand your liability for your spouse’s business debts in the UK.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.