Am I responsible for my wife’s credit card debt?
A wedding can be magical. Tears of joy flow as the happy couple vows to have and hold each other for richer or poorer.
But what if the magic wears off and you get a divorce? Will you be stuck with your spouse’s credit card debt and possibly end up much poorer than richer?
You will if you’re not careful.
It largely depends on two things – where you live and whether you entered into joint accounts with your spouse. The less you’ve combined your finances, the better.
Community Property States
Ideally, you do not want to live in a community property state. The good news for financially responsible spouses is there are only nine of them – Arizona, California, Idaho, Louisiana, Nevada, Texas, Washington, New Mexico and Wisconsin.
In those states, everything that is acquired during the marriage is usually considered equally owned by the spouses. It is the “property” of their once-happy “community.”
For instance, if your good-for-nothing husband secretly spent $39,000 playing on-line poker and put it on a Visa card, you are stuck with half the bill. That applies even if your name wasn’t on the credit card account.
There are nuances from state to state, but generally speaking, anything purchased during the marriage is community property. So anything owed as a result of those purchases –mortgages, auto loans, credit card debt – is community property.
Common Law Sates
In the 41 “common law” states, you are responsible only for debts in your name. That’s why it’s important to think hard before entering into a joint account. Know what you’re getting into before signing your name to an account.
If your ex charged that $39,000 on a joint Visa card in both your names, you are equally liable for the debt. Also, if you co-sign on your spouse’s credit card, you are on the hook for whatever bills are run up on that account.
Regardless of what state you live in, it’s not easy to totally protect yourself. For one thing, it might threaten your marital bliss.
When couples sit down to figure out their finances, the last thing their love-struck ears want to hear is, “I’m madly in love with you, but I fear you might throw away $39,000 playing online poker so I want to have separate credit cards and bank accounts in case you turn out to be a total loser.”
Maintaining Separate Accounts
As painful as it may be, an honest discussion of each person’s financial background, philosophy and goals is far more important than picking out the right wedding cake. Having separate accounts would certainly simplify things if your marriage hits the rocks.
If you really want to leave nothing to chance, work out a prenuptial agreement that keeps your income and debts separate. If you live in a community property state, that won’t necessarily protect you against the debts your spouse brings to the marriage, but it will shield you against the debts he or she runs up after the agreement is signed.
Even if you sign an iron-clad prenuptial agreement or set up individual accounts, it’s hard to totally disconnect your finances from those of your spouse’s.
For one thing, you are supposedly a team. And teammates are supposed to help each other.
Mortgage and Auto Debt
If your spouse has a lousy credit score, you won’t get a desirable interest rate if you buy a house or car together. Mortgages are usually so large that applying individually would not work. But with car loans, the partner with the better credit score could apply individually.
Once approved, the other partner can pay his or her share. The only danger is if only your name appears on the documents, your spouse could drive away and you alone would be liable for repaying the loan.
Credit Card Debt
It’s the same with credit card debt. If you let your spouse use one that is in your name, you alone are legally are responsible for the debt they run up.
There’s just no way around the fact that for better and worse, money affects a marriage. Finances are the leading cause of stress in marriages, according to a 2015 survey by SunTust Bank. About 35% of respondents said money was the major source of friction in their relationship.
“Money really touches everything,” said Emmet Burns, SunTrust’s brand marketing director.
And it’s not just the lack of money. Divorce magazine (which would not be a good wedding gift, in case you’re looking for one) reported in January 2017 that divorce rates are higher among people with college education than those who did not attend college.
The reason is financial incompatibility. A penny-pincher is going to clash with a shop-a-holic regardless of how much money they have in the bank.
And divorce hurts not only emotionally but also financially. The U.S. Government Accounting Office reports that divorce or separation led to a 41% drop in income for women and 23% drop for men, according to a 2012 study.
Debt and Divorce
If you get divorced, it’s important to leave the marriage with no shared debt. Try to pay off joint cards together or divide the debt and transfer it to cards in each partner’s name. Learn more about how debt is divided in a divorce.
That will protect you if your ex-spouse files for bankruptcy or just does not pay what they owe. If you’re not protected, creditors can go after you for the full amount of the debt.
If you find yourself in a situation like that, consider a debt management program. A nonprofit organization will work as a debt consolidator and work to reduce your interest rates on your credit card balances.
Consumers make only one monthly payment that is lower than the combined payments they were previously stuck with. Credit counselors also work with you to set up a budget and financial goals to keep you out of debt.
Such advice could also come in handy much earlier, when starry-eyed couples are just starting out and not even thinking about ramifications of credit card debt.
The best wedding gift you could give your spouse and yourself is financial protection. You don’t want to look back on that magical day when you walked the aisle and realize you were really walking the plank.
Summers, L (2017, Jan. 9). 5 Surprisingly Common Causes of Divorce. Retrieved from http://www.divorcemag.com/articles/surprisingly-common-causes-of-divorce
Holland, K. (2015, Feb. 4). Fighting with your spouse? It’s probably about this. Retrieved from http://www.cnbc.com/2015/02/04/money-is-the-leading-cause-of-stress-in-relationships.html
NA, ND Marriage & Property Ownership: Who Owns What? Retrieved from http://www.nolo.com/legal-encyclopedia/marriage-property-ownership-who-owns-what-29841.html
NA (2012, July 19). Women Still Face Challenges. Retrieved from http://www.gao.gov/products/GAO-12-699