Dealing with the Debt of a Spouse: Are You Liable?
The wedding planning is coming along nicely, despite a smaller budget than you hoped for. You and your spouse-to-be have decided on a venue, a cake, even the color pallette. Things are going smoother than anticipated. But then the topic of finances pops up in conversation. It’s not something that had crossed either of your minds — how much are you each in debt, and what are you going to do about it?
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.
In these states, debts incurred by your spouse after marriage are also your debts; any 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 you 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.
However, there’s a caveat that can remove your spouse’s liability: signing an agreement can keep incomes and debt separate. This is 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 house, will reflect on both credit scores. Both of your names will be on the loan. If, for instance, you buy a new car, but do not co-sign, 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 we 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 a 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 fits 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.
Need more information on how debt affects your credit score? Visit our credit score resource and learning center.
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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
This post was updated December 20, 2017. It was originally published July 13, 2017.