Finances strain marriages. In fact, one of the top three causes of divorce is financial stress. Even if your marriage is strong, almost all couples fight over money at some point. Leading causes of fights include financial infidelity (hiding money from your spouse), financial inequality (when one spouse has a lot more money than the other) and, of course, debt.
Are You Responsible For your Spouse’s Debt?
The first, and most basic question, is how much responsibility you hold for your spouse’s debt. The answer is: it depends.
Specifically, it depends a lot on whether your spouse incurred the debt before you got married or after. You are not responsible for any debt your spouse might have incurred before you got married. (You are also not responsible for any debt incurred after divorce).
In most states you are also not liable for accounts that are not in both of your names. So, if your spouse has a business and runs up debts on that credit card and it is not connected to you, you are not liable for that debt unless you co-sign it. In certain community property states, however, you are liable for all debt incurred during the marriage.
Practically, however, you are likely to find yourself helping pay off pre-marital debt.
What Should You Consider About Debt Before Marriage?
One spouse owing a lot more money than the other can cause tension from the very start of a marriage. Seven out of ten Americans have some kind of debt, generally credit cards or student loans, when they get married.
“Am I responsible for my spouse’s credit card debts?” Why not start out with a blank slate in a debt reduction program?
You should sit down with your partner before marriage and have both of you openly declare your debt. This includes:
- How many credit cards and the balances.
- Your credit score.
- Financial obligations from a previous marriage.
- Student loans.
- Medical debt.
If your partner hides debt from you, this should be a red flag–possibly enough of one to call things off. You should also ask about your partner’s plan to pay off the debt. Share plans if you both have debt and discuss how combining finances will change those plans. Another potential red flag is if your spouse has more debt and you make more money. This can lead to significant financial inequality within the marriage that adds to tension.
It’s worth talking to a tax advisor about filing taxes separately if one of you has significantly higher student loan debt, as doing so can help keep loan payments low. However, there are distinct tax benefits to filing jointly, and it’s not clear cut either way.
If your spouse has bad money habits (or if you do) then discuss with each other how you are going to work together to improve.
What Happens if Your Spouse has Debt and Passes Away?
Nobody wants to think about what happens if their spouse dies. If your spouse dies and has debt, then that can add an extra layer of stress to an already terrible situation.
The good news is that in most cases, nobody can be obligated to pay the debt of a person who has died. The exceptions are:
- If you co-signed the debt.
- If you are a joint account holder with them.
- If state law requires a spouse to pay that kind of debt.
- If state law requires an executor to pay that kind of debt.
- Possibly in community property states.
Check the law for your state to know for sure whether you are liable. Collectors are only supposed to call you if they are looking for the executor (who may or may not be you) or if you are legally obligated to pay. Sometimes, they will try to tell you you are liable for the debt when you are not. You can ask them to stop contacting you, although you may need an attorney to help with this.
Your deceased spouse’s unpaid debt will not affect your credit score.
However, the debt may be paid out of your spouse’s assets, reducing the amount of money that you inherit. Retirement assets and life insurance policies cannot be taken to pay off this debt. It’s much more likely that the debt will have to be paid by the estate if it goes through probate. The best way to avoid this is to write a will, even if you intend to leave everything to each other and the law in your state means you technically don’t need one.
Sit down together and write wills (while you are at it, write living wills to protect you if you are incapacitated).
What About Debt After Divorce?
Too many marriages in the U.S. end in divorce or separation. With financial stress being a leading cause, it’s unsurprising that many couples divorce with outstanding debt.
During the divorce settlement, the judge will divide debt and assets. Credit card debt only in your spouse’s name is generally their responsibility. However, shared debt will be divided. This can put you in the position of having your name on a loan, but with the debt assigned to the spouse. Obviously, this causes problems when they won’t or can’t pay and the creditors come after you. In this case, you may need to go back to the court to get the agreement enforced.
If possible, you should try and clear any debt before you formally divorce. Mortgage debt is best dealt with by selling the house and splitting the proceeds.
If you have significant debt (same as with significant assets), when you get married it might help–especially in community property states–to set up a prenuptial agreement. Generally, people think prenups are only for rich people, but they can also help ensure that you don’t end up liable for your spouse’s debt and paying alimony because you are making more money at the time of the divorce. A prenup is not a cynical assumption that your marriage won’t work, but simply a way to make it easier to disentangle your finances if it doesn’t.
How to Reduce Issues Related to Debt in Marriage
Given the potential complexities about debt after marriage, especially if your marriage ends in divorce, it’s obvious that you should try to reduce these issues.
It’s also a good idea to take steps to build your individual credit score before marriage. Once you are married your credit will go into a joint score, and you want a solid individual score to fall back on.
Coming up with a plan to manage your debt has also already been mentioned, but can’t be emphasized too strongly. Have an idea of how long it will take you to pay off that debt, and discuss it with your partner. It might not be possible to pay off all debt before marriage, but smaller amounts should be within your reach. It’s also vital to:
- Not hide debt, money, or spending from your spouse. Financial infidelity is a common cause of divorce and definitely adds strain to any marriage.
- Build your joint credit score.
- Have a combined plan to avoid debt and pay it off as soon as possible, especially debt other than your mortgage. Know how much you are willing to spend towards your spouse’s debt.
The most important thing is to communicate. Communication is the foundation of a healthy marriage, but also the foundation of keeping that marriage out of debt. Debt settlement or consolidation can be an option to ensure that debt is paid off in a reasonable amount of time and that you are not left liable for your spouse’s debt if they decide to leave you.
If you would like to talk to one of our debt specialists about debt reduction, please reach out today.