Getting married is an exciting event for couples: you get to start a life together with the person you love. But marriage is more than just planning for a glamorous wedding party. You have to consider serious issues with your spouse-to-be, like your finances.
In case you don’t know, money issues are so troublesome that they are responsible for a whopping 22% of all divorces. That’s why couples must have a good understanding of their financial standing and behavior before tying the knot. One crucial aspect of this is understanding how debts are being handled. In this article, we explore how marriage affects debt.
Bringing Debt Into Marriage
You might be wondering, “Am I partly responsible for the debt my partner brings into the marriage?”. The good news: You’re not! Debts that are brought into the marriage are incurred by the person that incurred them. For instance, if you have $20,000 private student loans in your name and your spouse-to-be has $15,000 in credit card debt, neither of you would be responsible for the other person’s debt.
However, there’s a crucial exception. If you served as a co-signer for the other person or opened a joined account, you would be liable if the other person doesn’t pay up. Whether you eventually get married to them or not, you’d still share legal responsibility for the debt. Similarly, opening a joint credit card account makes the holders equally liable for the debt.
Debt After Marriage
After you tie the knot, how your debt is handled is determined by several factors. As expected, cosigning a debt or opening a joint account with your partner makes you equally liable for the balance.
The state you reside in also determines how debt incurred after marriage may be handled. In this regard, most states can be divided into two:
- Community property states
Under community property laws, debt incurred during the marriage is assumed to the “communally” owned. This means each spouse is under equal obligation for repayment – it doesn’t matter if both spouses agreed or it or even if they knew about it.
In the United States, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Puerto Rico and Alaska also follow community property laws.
- Common law states
All other states in the United States fall under the common law states. Common law stipulates that debt that is taken on after marriage is treated individually. The spouse that incurred it is solely responsible for repayment. That’s why under common rules, spouses can maintain separate bank accounts, get car loans, credit cards, and borrow money individually. Only the name of the spouse incurring the loan will be associated with that loan.
Of course, there are exceptions. Spouses share the responsibility for debts that they both benefit from. Examples include rent, food, and clothing.
Furthermore, joint debt can be incurred under common-law if both spouses apply for a loan or credit together. In this case, both spouses’ credit scores and financial standing are taken into consideration to make lending decisions. As the names of both spouses will appear on the loan, they are equally responsible for repayment.
Implications of Shared Debts in Marriage
Whether or not you live in a community property state or common law state, you’d still have to share some debt with your spouse. This may be when you’re taking out a mortgage. Once the intermingling of debts between spouses starts, your spouse’s spending habits will affect your marriage. Their poor financial decisions will impact you. Here are some scenarios to bear in mind.
- Cosigning a debt or opening a joint account
Even if it’s your partner’s fault that you’re making late payments, it will still affect your credit score. You can be sued for the outstanding debt irrespective of where you live.
- Your spouse’s debt in a community property state
If your spouse cannot pay their debt, creditors can sue for jointly owned assets to recover the money. While you might not have been responsible for the debt, you’ll be partly responsible if your spouse defaults.
In community property states, the debt incurred after the marriage will be equally split between you and your spouse after a divorce, depending on your state’s divorce law.
In common law states, the divorce court uses the equitable distribution rule to determine how your marital debts will be split.
Before saying “I do,” you must have an open discussion with your spouse to discuss your financial standing, including debts. Spouses should have a solid grasp of their partners’ debt profile and possibly work out a debt repayment plan. Doing so will ensure no party feels cheated or used. It’s also important to continue the discussion as you take on new debts and financial responsibilities in your marriage.
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