How to Safeguard Yourself and Deal with Marriage Debt

Trends in marriage are changing: people wait longer to wed, and fewer are marrying at all. Where once couples immediately joined their assets and accounts, older couples and unwed couples are less likely to do so. Still, it’s possible to be held accountable for your spouse’s debt.

The average American owes about $7,300 in credit card debt. While that doesn’t sound like a lot, a marriage can compound expenses, such as finding a bigger place to live, moving to accommodate one spouse’s career, and having children. These normal expenses can make it more difficult to pay off the original debt, which then accrues interest (as well as potential penalties) and grows if it isn’t paid off.

Marriage debt is funds owed on credit cards, bank loans, car loans, mortgages, and similar financial instruments. Spouses don’t always automatically become legally responsible for their partner’s debt, particularly if it was incurred in the partner’s name prior to marriage. But there are exceptions.

Similarly, if one spouse files for bankruptcy, it should not negatively impact the other’s credit report, but shared debt will not be wiped out for the spouse who did not declare bankruptcy.

What is Spousal Debt Responsibility? 

Spousal debt responsibility is when you share the obligation to pay debts, even when you were not directly involved in acquiring the debt. These debts can include:

• Student loans.
• Mortgages.
• Personal loans.
• Credit card debt.
• Car loans.
• Civil judgments.

Some states consider debt accrued after marriage to be shared regardless of whether both spouses cosigned the account that carries the debt. These are called community property states, which are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

How Can I Deal With My Spouse's Debt? 

Disagreements over finances are believed to be the leading cause of divorce. Before getting married, it’s appropriate to learn about your partner’s financial situation. Look up your future spouse’s name in bankruptcy records. Rather than asking casually about your partner’s finances, consider sharing credit reports. This will allow you to see all of the recent past and current financial obligations that may affect your relationship.

If you’re asking, “Am I responsible for my spouse’s debt?” You may want to seek advice from a professional financial adviser or attorney before proceeding with the ceremony. A prenuptial agreement may be the first step in protecting your credit from liability for debt accrued by your spouse.

“Am I responsible for my spouse’s debt after death?” is a different question. If you were a joint account holder for a credit card with a high balance, the answer is yes, you are still responsible for it. If your spouse had their own student loan debt or credit card debt that you were not a party to, then you are not responsible for paying it. Upon death, the executor of the estate is generally directed to pay off debts using estate funds. That means your spouse’s debt may be reduced by the distribution or sale of their assets (bank accounts, investment accounts), which may clear your responsibility to pay.

In divorce situations, individuals are often required to continue paying off a spouse’s debt if their name is associated with the account, even if the debt was hidden from them during the marriage. Likewise, a judge can order a spouse whose income is significantly higher to take on paying a larger portion of the debt (commensurate with income) until the obligation is paid.

How to Minimize Your Debt Obligations

Some debt is beneficial to your credit score. This activity, as long as it’s paid promptly, helps you qualify for future loans such as a mortgage. Other debt, such as long-term credit card debt that is not paid on time or considered out of proportion to your income, can damage your credit score, making you less likely to qualify for loans.

Keeping debt in check is not always possible, as life events may require you to travel unexpectedly, to pay for a funeral, or to cover unforeseen medical expenses. It’s best if you’re able to shop for the best rates and terms before incurring debt. Those with good credit scores should be able to get low-interest rates on credit cards or to qualify for no-interest charges for a period of time.

Nonessential debt, such as new home furnishings or trading up a leased car for the newest model, should be avoided if it exceeds one-third of your income. This is the threshold that can trip loan denials and damage your credit score.

Setting a ceiling of no more than 30 percent debt-to-income ratio and sticking to it can minimize your debt obligations. This includes any debt assumed as part of a marriage.

If your debt is overwhelming and it’s growing out of control, you may consider bankruptcy to discharge the consumer debt and start fresh. Federal law says that certain types of debt are not discharged by bankruptcy, including alimony, child support, and student loans. Bankruptcy remains on your credit score for at least seven years, a marker that usually blocks individuals from qualifying for loans or credit cards during that period. There are different types of bankruptcy for various personal and business situations.

If your spouse declares bankruptcy, it may discharge the debt they accrued before your marriage but will not absolve you from obligations to pay your portion of any shared debt.

How to Protect Yourself from Spousal Debt Liability?

There are a couple of ways to protect from spousal debt liability, such as:

• A prenuptial agreement, witnessed and notarized as required by state law, can keep your debt and your spouse’s debt separate. This way, the husband or wife pays debt out of their own earnings, and neither assumes responsibility for the other’s finances.
• Do not cosign credit card or loan applications, which automatically makes you responsible for any debt your spouse assumes, even if your spouse is the only one who uses the credit card.
• Underscore the separation of finances by maintaining separate accounts. Perhaps only one household maintenance account, which you both contribute equally to each month, is enough comingling of assets. As many as a quarter of married couples keep separate accounts, according to the US Census Bureau.

Don’t Get Stuck Paying Off Someone Else’s Debt

Know how to keep your bills separated from those of your spouse, just in anything ever happens. By keeping things separate to start, it is easy to maintain should your marriage ever fall into disarray.