Debts committed before marriage remain your separate liabilities; however, debts accumulated after the wedding will be shared responsibility. Before you tie the knot, it’s important to understand how much debt each of you brings to the marriage, which debts you’re individually liable for, and how you’ll handle the debt you take on as a pair. Here’s some information to get the discussion going.
Who Is Liable for Pre-Marriage Debt?
When one or both parties enter the marriage with debt, the debt belongs entirely to the individual who incurred it.
If one of you served as a co-signer for the other person or created a joint credit card account, you are exempt. Co-signers are held equally accountable for debt repayment, regardless of whether both parties benefitted from the borrowed funds. So, if your spouse co-signed on a vehicle loan or student loan because your credit score wasn’t strong enough to qualify for the loan, they’d still be legally responsible for the debt even if they don’t drive the car or attend classes.
Similarly, creating a joint credit card account or payday advance app account – whether to improve credit or to double up on credit card rewards – would make you both equally accountable for the debt. A joint credit card account, like a co-signed loan, would appear on both of your credit reports and be represented separately in your credit ratings.
Debt in the Common-Law States
If you reside in any of the other states or opt-out of Alaska, your marital debt will be subject to common-law standards, which enable spouses to incur debt as individuals even after marriage. Common-law principles also let spouses have separate bank accounts, borrow money as individuals, get vehicle loans and credit card accounts on their own, and incur other obligations on their own.
Joint marital liability is assigned under common-law standards for obligations that benefit the couple and their family equally, such as food and clothes or rent on a shared dwelling. They also differentiate between debts sought individually by one spouse or both, and debts sought jointly by both spouses.
Individual debt, including credit card accounts and loans, must be in the name of just one spouse, which means that the credit application will only reflect that spouse’s credit score, income, job history, and so on. Generally, whoever’s spouse’s name is on the account is considered accountable for repaying it. In other words, the spouse whose name is not on the loan is exempt from having to pay it.
In a common-law state, joint debt may be acquired during the marriage if both spouses apply for a loan or credit simultaneously. In such a situation, the loan decision takes into account both couples’ credit ratings, as well as both spouses’ earnings and assets. Under common-law norms, if both spouses’ names appear on the loan (mortgage contract, credit cardholder agreement, vehicle loan note, etc.), both are equally accountable for repayment.
Debt in the Common Property States
If you reside in one of the nine community property states or Alaska, debt incurred during your marriage is considered “community” liability, with each spouse owing equal payback. Whether or not both spouses consented to the debts, or even if both were aware of them, both are equally accountable for covering them.
What Happens If a Shared Debt Isn’t Paid?
Even if your partnership isn’t working out, a joint obligation must be paid. If your marriage ends and your ex fails to pay the obligation, creditors may have the right to demand payment from you. That includes any accounts that your ex was ordered to pay as part of the divorce judgment.
A divorce court may split common debts, but that doesn’t imply your husband will pay them. As a result, staying up to date on mutual funds is a smart idea. If your ex-spouse begins skipping payments, it’s time to contact out and discuss your options.
The Effects of Debt Sharing in Marriage
There are two reasons why it’s critical to understand if you’re accountable for a married partner’s debt. First, there are possible penalties if you do not pay a loan.
- Late or negative payments may harm both your credit reports and scores if you co-signed a loan or created a joint account. And, regardless of whether you reside in a community property or common law jurisdiction, you might both be sued for an outstanding obligation.
- In a community property state, creditors may attempt to attach jointly owned assets to collect what is due if a debt is carried by just one spouse. Bank accounts and any real property you possess, such as a house, land, or car, may be subject to creditor collection. Even if you were not personally responsible for the loan, you would still be obligated to repay it if your spouse defaulted.
- If you and your spouse divorce in a community property state, the debts you brought into the marriage as individuals will stay yours. Debts incurred after the marriage, on the other hand, may be shared evenly between you, depending on the divorce rules in your state. Divorce courts in common law jurisdictions normally follow an equitable distribution system, which means it is up to the court to determine how marital debts should be distributed.
Finance is an important item to discuss before the wedding since 86 percent of couples who married in the previous five years began in debt.
Is My Spouse’s Debt Affecting My Credit?
Marriage has no effect on your credit score since the data on which those scores are based—compiled in your credit reports at the three major credit agencies (Experian, TransUnion, and Equifax)—does not contain information regarding marital status. After marriage, spouses have their own credit records and credit ratings; there is no such thing as a couple’s credit report.
However, since credit reports and scores from both spouses are evaluated anytime a pair applies for a loan or credit card together, if you or your spouse has a bad credit history, it may impact your ability to borrow money jointly.
Marriage is a significant financial investment that should not be taken carelessly. Not only will you be liable for someone else’s debt, but it may also harm your credit history.
If your partner has poor credit, a combined loan may result in higher interest rates or even denial. If your spouse files bankruptcy, you may be forced to liquidate communal assets in order to repay the debt.
Before you get married, you should discuss money with your spouse. Then, consult with a legal professional to determine how your state’s laws would affect your personal liability.