When you join your life with another in marriage, you make the promise to share all the joys and challenges of the future together…but does that include debt? What if you are a diligent saver while your husband comes into the marriage with $50,000 in student loan debt? What if he dreams of starting his own business but needs to take out a massive business loan? As his spouse, are you going to be on the line if he can’t pay? (Learn more about Money Harmony and Marriage.)
The answer to this question will depend on four important factors:
- When the debt was incurred
- What the debt was for
- Who accepted responsibility for the debt
- Your state of residence
Clean Slate After Marriage
It is not unusual for one spouse to enter into a marriage with student loan debt, a mortgage, or a lingering car loan. When you say, “I do,” are you also taking responsibility for your new hubby’s debts? You can breathe a sigh of relief. You are not responsible for any debt your spouse incurred before your marriage, unless you incurred the debt together (for example – by signing a mortgage loan together). We should note here that even though you are not responsible for your spouse’s debts prior to marriage, it is very important that you two have a frank discussion about your finances before you walk down the aisle. Student loan debt is understandable, but if your husband-to-be has maxed out his credit cards, that could bode poorly for future financial harmony, not to mention potentially make it difficult for him to qualify for future loans at low interest rates.
Why Your State of Residence Matters
What happens if your husband incurs significant debt during marriage? Are you going to have to hawk your engagement ring to bail him out? That actually depends in big part on where you live. A handful of states known as “community property states,” view almost all income, assets, and debts acquired by either spouse during marriage to be owned equally by both spouses. This is a very good thing if your spouse earns a big paycheck, because that means you have a right to half his salary. However, the flip side of the coin isn’t so pretty. If your spouse takes out a $100,000 business loan and then his business venture folds, you may be on the hook for half the loan amount. Ouch!
The community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (Couples in Alaska have the choice to follow the rules of a community property state as well). Regardless of where you live, you should always be aware of your spouse’s spending habits and general financial situation, but this is even more critical if you live in a community property state.
Equitable Distribution States
If you do not live in a community property state, then by default you live in an equitable distribution state. The laws vary from state-to-state, but generally speaking, this means that each spouse’s income and debts are their own in many cases. If your husband buys his dream muscle car and then can’t make the payments, his creditors can’t go after you. This is important to know, because some sleazy collection agencies may try to convince you that you are responsible for paying off his debt. You aren’t!
There are some exceptions to this general rule. If one spouse incurs debt on things that benefit both spouses (or the family), then the other spouse may be held liable for half the debt. This could include things like food, childcare costs, college costs, etc. Also, if you co-sign a mortgage or loan, you are accepting responsibility for that debt.
How to Extricate Yourself from Your Spouse’s Debt
Regardless of where you live, it is a smart idea to make an appointment with a financial advisor or family law attorney so that you can understand the specific laws in your state regarding debt in marriage. If you live in a community property state and are not too keen on being held responsible for your spouse’s spending frenzies, you can shield yourself with a well-written pre-nuptial or post-nuptial agreement.
Have more questions about paying off debt? Check out some great articles on investing and saving.