Outlook Money
If the wife is not directly involved in the business then taking a business loan with her as a guarantor is beneficial but it has to be treated with caution.
If the wife has no direct or indirect role in her husband’s business, then under the Married Women’s Property Act her assets could not be attached in case of loan recovery action by the lender. So that way the family can hold on to a few assets which are in the wife’s name in case the husband is unable to pay off the loan.
If a disputed asset is held jointly by the husband and wife then the lender has to return the wife’s portion of the asset after the liquidation of the asset.
If a business is set up as a sole proprietorship, then the assets of a wife could be attached in a loan recovery action by the lender. In the case of limited liability partnerships, the assets of inactive partners cannot be attached to a loan recovery lawsuit.
If in the future the wife no longer wants to be the guarantor, then the borrower has to reach out to the bank with an alternate guarantor or additional collateral. However, the bank has the sole discretion in allowing or disallowing the switch.
Taking a business loan in the wife's name can have significant implications. She may face personal liability, affecting her credit and finances. In case of divorce, assets division, including debts, will also be impacted.