How To Actually Know If You Are Responsible for Spousal Debt

We all know (or hopefully know) that marriage is a very serious commitment. You are signing a legal document that comes with a lot more responsibility than just taking care of each other in sickness and in health. This article dives into the topic of debt and whether or not it becomes the spouse’s debt as well after marriage.

Non-Legal but STILL Important:

Prior to tying the knot, it is incredibly important to make sure that you and your significant other open up about your financial health. When you enter a marriage, there should be no surprises. Everything needs to be laid on the table prior to any nuptials.

Both parties involved should fully understand each other’s financial situation and be willing to help if necessary – that is marriage, after all, right? Having someone there to help you when you don’t know how to help yourself.

Legally:

Legally, it can depend on what state you are in. There are two types of states. Community Property States and Common Law Property States.

As of 2019, Alaska (upon individual’s choice), Arizona, California (including domestic partners), Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are all Community Property States while the other 40 states are running as Common Law Property States.

What Does Community Property Mean?

Any earned income while married is considered community property and therefore ownership is split 50/50 between spouses. This also includes any property that was purchased with the income produced while married.

As for debt, any incurred while married is considered community property. Therefore, a creditor could technically go after other community property assets to pay off the owed debt.

What Does Common Law Property Mean?

It is the opposite of common law property states. This means that money earned or debt accrued while married doesn’t necessarily fall upon the spouse as well. Furthermore, only the spouse who incurred the debt can have their assets be liable for debt payoff. The debt would only be held jointly if both spouses signed a written contract or both spouses names are on the account.

This means that if spouse #1 took out a loan for a car and cannot pay the monthly bills, the creditor cannot legally contact spouse #2 to use their own individual assets to pay off this debt.

If spouse #1 and spouse #2 have a bank account with both names on it, that could potentially be sought after by a creditor. However, in the majority of common law property states, the creditor would only be allowed to take half of the assets held jointly to pay for a single spouses debt.

There is a loop-hole around owning assets jointly, it is called tenancy by the entirety. Tenancy by the entirety means that spouses can hold assets jointly; however, assets held in this form are “safe” against creditors. There are quotation marks around “safe” due to the fact that this law can get very complex. It should not be used as a primary plan for protecting assets, but it is still good to know. Talk to a lawyer before making any major moves regarding tenancy by the entirety.

Final Thoughts

Prior to even sending out save-the-dates, make sure both spouses are aware of each other’s finances. If you are married and worried about taking on your spouses debts, consider talking to a lawyer about all your options and asking if tenancy by the entirety is right for you. Do your due diligence on what your state laws are and discuss with your spouse what the best option going forward is for each of you.

BONUS! If you and your significant other are looking to potentially combine your finances, check out this questionnaire!

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