Am I Responsible for My Spouse’s Debt?
Marriage is a huge step for most people. It signifies some major life changes — including to your finances. Even as you celebrate, you might have some questions about exactly what marriage means for your financial future. Is their debt now yours? What is your liability when it comes to student loans, credit cards, and other forms of debt? What happens to your credit score?
These issues can get complicated. The short answer is that, among other factors, it depends on where you live. Divorce, death, joint accounts, and court proceedings can all make a huge difference in your liability when it comes to your spouse’s debt. Let’s take a look at the complexities of sharing assets and debt with a spouse.
Credit Card Debt Liability in Common Law States
Most U.S. states are common law states. That simply means the property you acquire belongs to you — even if you’re married. Unless the property is in both people’s names, it belongs to one person. Forty-one states are common law states, so it’s likely this policy applies to you.
When it comes to money and marriage, common law provides that one spouse owns a particular asset unless you both put your names on it. That includes property like houses, automobiles, and even credit cards. If your spouse has a credit card with their name on it, it’s theirs alone. Therefore, the credit card debt liability also falls entirely on their shoulders.
You would need to become a joint account holder in order to own any part of that debt. However, you could also be on the hook for that debt if you co-signed on the account. If your spouse made you an authorized user, though, that still leaves the credit card entirely in their name and not yours, meaning you hold no responsibility for paying any associated debts.
Spouse’s Liability in Community Law States
There are nine states that are community property states rather than common law states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, any assets acquired during a marriage belong to both partners. It doesn’t matter who owns the account or property; the assets belong to both of you. There are, of course, some exceptions to this rule. These include if:
• A purchase was made solely by one spouse and the property is listed only in their name;
• The property was gifted to just one spouse;
• The property was inherited by just one spouse during the marriage;
• Property was acquired by just one spouse through a will or trust fund;
• The property was acquired before the marriage began;
• The property was acquired while the spouses were legally separated and living separately.
In a common law state, your partner’s credit card belongs only to them. But in a community property state, if they get a credit card while you’re married, that debt now belongs to both of you. Both partners are liable, regardless of who might have opened the account or accrued the debt, though there is an exception: If you and your spouse are separated before they begin racking up the debt in question, you may not be held responsible. Each situation is different, however, and the state could hold you responsible for the debt in question should it be proved the debt was incurred for the benefit of the marriage.
It’s good to keep in mind that if you have debts from before the marriage, such as a car loan, those will belong only to you. However, if you get another car loan after getting married, that is now a communal debt that you and your partner share.
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Will My Partner’s Debt Affect My Credit Score?
You can breathe easy here. Even in a community property state, your partner’s debt won’t affect your credit score. If one person has some ups and downs in their credit history, that remains their credit history alone.
However, things change if you open any sort of joint account after getting married. Because that account is partially yours, it will appear in your credit history, so it’s a good idea to make sure you’re feeling confident in your spouse’s financial standing (and responsibility) before opening that joint bank account. You can always keep your financial accounts separate to protect your credit score, if you have concerns. When it comes to things like checking and savings accounts, though, even common law states may end up viewing these as joint property in the case of a divorce, and community property states almost definitely will.
What Happens If We Separate Or Divorce?
While one of the first questions may be ‘how much will a divorce cost me,’ it is very quickly followed by, ‘what happens to our debt?’ Again, it depends. Debt isn’t as simple as dividing things in half. For example, if you have a credit card that is only in your name, that debt remains entirely with you. However, if you have a joint credit card, most states will see that as joint debt if you separate or divorce, meaning you’ll both be responsible for that debt. It doesn’t matter who was making payments or running up bills; the law will see it as a shared burden.
But there’s a lot more than credit card debt to consider during a divorce. If you have a house, you may want to consider selling it off and splitting the money. Trying to untangle a mortgage debt if one of you will be moving out can get dicey. The partner who’s staying in the home may need to buy out the partner who’s leaving, for instance.
All of this becomes even more complicated if you did any investing as a couple during your marriage. Investments come with legal and tax obligations, on top of the financial complexity. If you invested together, you may want to think about selling off those investments and dividing the proceeds during a divorce. However, a lot of investments like that come with tax burdens, so keep that in mind if you have to go this route. Backing out of certain investments early, or even getting paid out for investments, could incur fees and taxes that you and your partner will have to sort out.
It is possible to split those kinds of investments. If it was stock, for example, you could divide up the shares between both partners. This can get messy, though, if one partner is a more aggressive investor than the other.
Of course, the courts might answer this question for you. If you decide to divorce and it is contested, the court could determine which partner owns which debt. In that case, it won’t really matter who opened the account. You will likely have to pay off the debt assigned to you or your ex-partner will be able to sue you. And if your partner goes through bankruptcy, you may have to handle some of that debt if the court orders you to, regardless of whether or not the court discharges any of that debt.
Finally, sometimes a spouse, unfortunately, passes away. Again, if you have joint accounts, you will probably be liable for that debt. If you co-signed anything or your name appears on the paperwork, you may have to handle that debt burden on your own now. Sometimes assets and property can help pay off that kind of debt, but that will depend on the state you live in and what kind of assets you and your partner owned.
Finances can be complicated at the best of times, and marriage can multiply the complication. If you want to be certain of what your state says about property rights for married couples, the first thing you can do is find out if you’re in a common-law state or a community property state.
After that, you may want to consider how intertwined or separate you want to keep your accounts. If you have concerns, you may want to shy away from things like co-signing loans or setting up joint accounts. Instead, you could sign up for a SoFi checking and savings account before you get married as a means of having assets that belong exclusively to you, even during marriage. Having a bit of money you manage on your own could ease some of your financial fears going into a marriage.
Photo credit: iStock/AleksandarNakic
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