Understanding and navigating debt is incredibly important in partnerships. Debt that people incur prior to marriage remains their individual responsibility. But debt that accumulates while married is shared between both people. How this debt is shared largely depends on the state you live in and the specific type of debt.
Common Law States
The majority of states fall under what is referred to as common law. This allows people to take on debt as individuals even after marriage. This means that spouses can maintain separate bank accounts, take out loans, credit cards etc. and incur debt as an individual. If only that individual’s name is on a loan, that person is completely responsible for that loan. This means that spouses cannot be held liable if there is failure to make payments on debt. There are a few exceptions to this which includes joint household expenses. Common law assigns joint spousal responsibility for debts that benefit both parties and their family even if a joint account was not created. This includes things like housing, child care, and food.
In common law states, joint debt can be incurred during marriage if both people apply for new lines of credit together. This means that both names, credit scores, incomes, and assets are provided and used to make lending decisions. Common law rules stipulate that both parties are then equally responsible for repayment.
Community Property States
These laws change drastically in the nine community property states which are: Arizona, California, Nevada, Idaho, Washington, New Mexico, Texas, Louisiana, and wisconsin. The similarity between community property and common law states is that personal debt incurred before marriage remains that individual’s responsibility.
The significant difference is that in community property states, any debt taken on by either person during a marriage automatically becomes a shared debt and responsibility. This includes lines of credit that were applied to and taken out by one spouse. So even if the other person’s name is not listed and their information provided as part of the application process, they can still be liable for that debt. This also means that creditors seeking repayment on an individual’s debt could come after assets that are now shared in a marriage. Community property state laws stipulate that even if both spouses agreed or knew about debts, they are equally responsible for repayment.
One way that people navigate joint liability is by outlining and signing legal agreements that provide individual protection. These are referred to as pre nuptial or post nuptial agreements which state that debts and income are treated separately.
Navigating Your Spouse’s and Shared Debt
Whether you are in a common law or community property state, it is likely that you will incur debt during a marriage. You may apply for a mortgage or other types of loans so that both incomes can be considered in lending decisions. Before marriage and throughout your relationship, it is critical to practice open and honest communication about money and debt which can help you navigate and manage finances with greater ease. Prior to getting married, it is important to have a solid understanding of where your spouse is financially. This should include knowing about credit histories, spending behavior, financial anxieties, and general relationship with money. Having this knowledge about each other can help you plan more thoughtfully and manage shared finances effectively.
Once there is shared knowledge, you can discuss how to go about prioritizing debts and approaching shared finances. Things to talk about can include:
- Assigning who is taking the lead with which finances
- Establishing and allocating a specific amount of income to joining household debts
- Identifying consistent time to review finances, have conversations about debt, regular financial check-ins
- Deciding how you are going to approach incurring future debt (mortgage, car loan etc.)
These conversations, and having them regularly, helps you strategize ways to manage finances together. Practicing open communication around these topics, which can be sensitive, is also an important way to cultivate closeness and honesty. This can prevent financial conflicts and unexpected mishaps. Marriage is a life-long commitment that also has serious financial implications. So be sure to create the space to have these conversations regularly!
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