Q         Dear Rick:

I think I screwed up on something and I was hoping that you could help me.  For the last seven years I had a significant other.  We owned a home together and basically commingled our finances.  I was at one of your seminars many years ago and you recommended that before we bought the house we enter into some sort of written agreement, which we did.  When we broke up it was relatively easy to divide things.  I’m so happy we had an agreement ahead of time because it made things so much easier.  The problem deals with a charge card.  I had added on my significant other as an additional signatory on my credit card.  At the time we broke up, that was the only credit card he had.  Because of his financial situation, he had trouble getting credit.  I agreed to let him continue to use the charge card as long as he made the payments.  In fact, I made him sign something to that effect.  Unfortunately, after the first couple months, he stopped making payments.  I sent the charge card company a copy of the letter he signed assuming full responsibility for the credit card.  Unfortunately, the credit card company refused to accept that agreement and they claim I’m on the hook for the balance.  Obviously, I should not have let him keep the charge card but I did.  I thought the letter would protect me.  My question to you is, do I have any options?

April

A         Dear April:

I hate to be the bearer of bad news but I agree with the charge card company that you are liable.  The fact that he agreed to assume responsibility for the charge card is only an agreement between the two of you

and doesn’t affect the charge card company at all.  From the charge card company’s point of view, their agreement on that charge card was with you and thus, they are correct that you are responsible for the payment.  Therefore, I recommend that whether it is a payment plan or one lump-sum payment, you do pay off the charge card.

Although you are responsible for the debt to the charge card company, you do have recourse and this is against your significant other.  He is responsible to you for those purchases and thus, you have a claim of action against him.  Therefore, depending upon the dollar amount, you may consider taking him to small claims court or even hiring an attorney to go after him.

If you end up not collecting the money, you may be able to write the loss off on your taxes as a bad debt.  I would talk to your tax individual to make sure you dot all the I’s and cross all the T’s.

April did all the right things by having a co-habitational agreement.  More and more people are not going the traditional marriage route and as a result, laws that were geared to protect married couples don’t apply to them.  That is why it is important to have some sort of legally binding agreement that protects both parties.  However, the key to remember is that the agreement is only binding on the parties and does not affect third parties such as in this situation, the credit card company.

Remember that if you add someone’s name to your charge card, you are responsible.  It doesn’t matter what sort of an agreement you have with that person you are liable to the charge card company.  That is why it is always important to think twice about adding an additional signatory to your charge card, co-signing, or guaranteeing a loan.  My general rule is if you do co-sign or guarantee a loan, or add someone on to your charge card, you should assume you will be the one having to make those payments.  If you’re good with that, no problem.  On the other hand, if it doesn’t sit right with you, then probably you should not co-sign or guarantee a loan nor add anyone onto your charge cards.

Good luck!

Rick is a fee-only financial advisor.  His website is www.bloomassetmanagement.com.  If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com