Dealing With a Spouse’s Debt: Are You Liable?
You have just gotten engaged, wedding planning has begun, and you and your soon-to-be spouse are beginning the rest of your lives together. Discussions such as future children, buying your first home, and finances arise. You learn a lot about each other, but sometimes what you learn isn’t always the information you want to hear.
This could mean information about past relationships or even learning that your spouse has acquired a lot of debt. When you get married, does this make you liable for their debts as well?
Community Property States
Before asking, “Is my spouse liable for debts?” you need to know if you live in a community property state. The following are community property states:
- New Mexico;
Alaska can also be a community property state, but both parties must agree to community property, which rarely happens.
But why does this matter? In these states, debts incurred by your spouse after marriage are also your debts; any previous debts such as student loans or credit cards won’t affect you or your credit score. However, if you create joint accounts, you create joint debt. It affects both credit scores, and you both owe the money — how you pay it or what percentage each person pays is up to you.
In other words, if your spouse has a poor credit score, you aren’t affected. There is no joint credit score. However, failure to pay the joint debt will affect your credit score, just as normal debt would. Be sure someone is paying the debt off.
That said, there’s a caveat that can remove your spouse’s liability: signing an agreement can help to ensure your incomes and debts are separate. This is especially helpful if your spouse is starting their own business.
Co-Signing and Loans
Much like opening a joint account, co-signing a new loan, such as for a car or a mortgage for a home, will reflect on both credit scores. This means that both of your names will be on the loan. If, for instance, you buy a new car with only your name on the loan and your spouse decides to take an extended joyride and not return, you are still liable for the car.
However, this works both ways — if your spouse comes into your marriage with a loan you are not named on, you are not liable. In this way, you are not responsible for credit cards, cars, tuition, or any loan brought into the relationship without your name on the papers.
For example, chances are your name is not on your spouse’s college tuition loan. Except in rare cases, spouses are not liable for each other’s student loan debt. In the same way, unless it’s a joint account, spouses are not responsible for each others’ credit card debt.
However, if you are in a stable relationship, it might be a good idea to take on the debt as your own, in a sense, and help your partner pay. This can help repair your spouse’s credit score, making it easier for both of you to get loans at better interest.
Talk About It
Now that you know how joint accounts, loans, and credit works, how can you use this to cope with a spouse bringing debt to a marriage? Be frank; don’t leave anything out. You are going to be a team, after all. An honest discussion is the only way you will be able to blend finances and create a proper budget after marriage.
Creating a budget for two people isn’t much harder than creating your personal budget. At the most basic level, you aim to spend less than you make while still paying debts.
As such, you should make a plan for paying back tuition and other loans that fit in with your new budget. Make minimum payments on credit cards until you are in a good financial position, and then start paying down loans faster, as this will decrease interest over time.
Not only is this the perfect chance to start paying back loans, but also planning for a better financial future for your family.
Know your state’s laws regarding community property in a marriage. Have a frank talk about debt and finances with your spouse. Make a plan, and form a budget for both of you to follow. Start paying down debt, and your future will look bright.
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A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42