This paper characterizes when joint …nancing of two projects through debt increases expected default costs, contrary to conventional wisdom. Separate …nancing dominates joint …nancing when risk-contamination losses (associated to the contagious default of a well-performing project that is dragged down by a poorly-performing project) outweigh standard coinsurance gains. Separate …nancing becomes more attractive than joint …nancing when the fraction of returns lost under default increases and when projects have lower mean returns, higher variability, more positive correlation, and more negative skewness. These predictions are broadly consistent with existing evidence on conglomerate mergers, spin-o¤s, project …nance, and securitization.Journal of Economic Literature Classi…cation Codes: G32, G34.