It’s a common concern amongst both husbands and wives that a failing business could impact them personally.
When your spouse’s (and the same goes for both husbands and wives) business is failing it is a reasonable concern that these debts could affect the household detrimentally. However, in most cases you will not be held liable for the business debts of your spouse as long as you did not open the company accounts jointly.
As we’ll cover in this article, you are free from liability in most cases.
Liability for Your Wife Or Husband’s Company Debts in the UK
The first point is that the limited company structure is designed to limit personal liability. So even the directors of limited companies shouldn’t be liable personally, unless they’ve engaged in wrongful or fraudulent trading, or some other form of misfeasance.
In the case of a spouse, you are even more removed from the situation so there’s nothing in company law to put you at risk. Therefore, legally speaking a creditor would not be able to take you to Court or seize any of your assets that are solely owned by you. If, however, you opened the business in partnership with your wife and the debts were created by her then a lender may be able to take you both to Court if both of your names are on the loan agreement.
There are some exceptions, however, as we’ll cover below:
You 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 bailiifs on their behalf, can take possessions jointly belonging to a spouse, as long as the debtor is at least a part owner.
What About Co Signed Personal Guarantees?
It is a common enough scenario for one partner, needing business finance for a limited company, to use a jointly signed personal guarantee as loan collateral. Usually, this means the family house is the security and, in the event of default, this guarantee can be called in.
Joint and Several Liability for Debt
Neither part of a marriage is liable for their partners debt by default. If you sign a finance agreement together, however, this makes you jointly and severally liable which means you will be held liable.
Joint Bank Accounts Mean Credit History Will be Impacted
Another thing to note is that if you set up a joint bank account, then credit checks will happen on both parties. So if your spouse has bad credit, which may have happened completely independently of you, then this going to be reflected in your own ability to gain finance.
If both parties have several joint accounts together, their names will show up on each other’s credit reports. Should either party have some poor business credit ratings. Could this affect your ability to obtain approval for financing in the future. Yes, it is in fact possible that a lender will deny you access to financing due to the presence of your husband’s name on your credit report given the fact that he has a poor credit history.
As a point of caution, it is wise to keep your accounts seperate should either party have experienced credit issues before.