There is a lot of it going around and it can have a lethal affect on one’s financial health.
The Australian Law Reform Commission defined “sexual transmitted debt” as:
“the transfer of responsibility for a debt incurred by a party to his/her partner in circumstances in which the fact of the relationship, as distinct from an appreciation of the reality of the responsibility of the debt, is the predominant factor in the partner accepting liability”.
Probably, the most common way of catching sexually transmitted debt is by signing a guarantee at the request of one’s partner without thinking about it or taking advice. Standard form finance company (including trade financiers) and bank guarantees are usually unlimited and contain an “all monies” clause which makes the guarantor liable for ever dollar that the lender advances to the partner/customer. The guarantor is also liable for all interest and charges and the lender’s legal costs on a full indemnity basis.
As well as containing an “all monies” clause, standard form guarantees usually contain a clause by which the guarantor charges all of his or her property, including real estate, with payment of the debt of the borrower/partner. This amounts to an agreement to grant a mortgage over the guarantor’s real estate, which gives the lender the right, after taking some legal steps, to sell the family home or any other real property owned by the guarantor.
Not only that, standard form guarantees usually provide that the lender can take action against the guarantor without first bothering to try to recover the debt from the defaulting borrower/partner
The law provides considerable protection to the vulnerable from the consequences of sexually transmitted debt. That protection comes from the principles of equity, including a special wives’ equity, the Contracts Review Act, the Competition and Consumer Act and the Australian Securities and Investments Commission Act. However, court cases are extremely expensive, time consuming and stressful. Court cases are best left to those whom for such cases are just business e.g. banks, finance companies, insurance companies and the like. They are certainly not for guarantors fighting a rear guard action trying to save their home.
So, guarantees are extremely dangerous to one’s financial health. One’s first response to a request for a signature on a guarantee should be: “Sweetie, if you want a guarantee, buy a toaster.” The second response should be to take legal and financial advice.
At Everingham Solomons we have the experience and expertise to assist you because Helping You is Our Business.
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