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Consider this when you are asked to give a guarantee

  • You are living in a de facto relationship with John

  • You own a home jointly with John;

  • John wants to buy his former wife's share in the former matrimonial home for his own investment

  • John is borrowing money against that home, the home you and John own and

    the bank wants a guarantee from you for John's loan

Your relationship places you in vulnerable position in this matter. If you do not sign the document, then your relationship will suffer.

There are immediate danger signs. If the bank was satisfied that John had the capacity to repay the loan without risk, then it would simply take a mortgage over the home he wants to buy.

Before signing the guarantee, consider these matters -

  • the guarantee will cover all money which John currently owes to the bank and any money he borrows in the future from the same bank

  • you remain responsible if John dies or if you and John separate

  • your home will be at risk

  • you can be called to repay the money even if John is not in default under his agreement with the bank

  • it is difficult for you to contest the amount sought by the bank because checking the bank's calculations is a job for an accountant

  • there are no benefits for you in signing the guarantee - except perhaps maintaining harmony in your relationship with John

    Although this factual situation may not be the same as yours, guarantees are something which you should not treat lightly and if possible, avoid altogether.

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