Key Things to Know About Debt and Marriage
By Andrea Bereznak
When you get married, you merge lives with another person. You promise you’ll stick together for better or worse, richer or poorer, in sickness and in health.
Hopefully your vows will last your lifetime, but regardless you should know the financial implications when you legally join with another person.
Am I Liable for Debt my Spouse Acquired before we Married?
No. Neither you nor your spouse become financially liable for the other’s pre-marriage debt when you marry. Some married couples choose to pay off separate debts together, but in the event of a divorce, remaining debt brought into the marriage is generally owed by the spouse who incurred it. If the debtor spouse chooses not to make payments on a certain debt, it will only affect the credit score of the spouse who brought it into the marriage.
Does my Spouse’s Debt Affect my Credit Score?
Getting married does not directly affect your credit score. The data on which credit scores are based does not include information about marital status. You and your spouse retain your own individual credit reports and credit scores after marriage. As with pre-marriage debt, unless both of your names are on the debt, it will only affect the credit score of the spouse who incurred it.
However, if you jointly apply for a loan or line of credit together, both your and your spouse’s credit reports and scores are considered. If you or your spouse has a poor credit history it could affect your ability to borrow money together. With joint debt, your credit score can be impacted. Say your spouse goes on a shopping spree with your joint credit card and then the balance isn’t paid off in a timely manner. Since your name is on the account, you are on the hook for paying and your credit score will be negatively impacted.
We took on debt after getting married. Who is responsible? – Community Property States
Debt payments are the responsibility of the person whose name is on the application, at least until divorce, death or annulment. Then, whether or not both spouses owe is based on the rules of the state — either community property or common law. In practicality, whether or not your state says all your marital debts are conjoined, most couples incur some debt together. Most commonly, you may choose to apply for a mortgage or other loans with your spouse so that both of your incomes can be considered in the lending decision application.
Here in Arizona we are one of the nine community property states. At the time of death, divorce, or annulment, debt assumed during your marriage is understood to be "community" responsibility. This means each spouse has equal obligation for repayment. This is regardless of whether both spouses agreed to the debts, or even whether both knew about the debts. Both you and your spouse are equally responsible to cover them. Learning about this joint obligation can be quite an unpleasant surprise for divorcing couples.
If your spouse is insolvent, his or her creditors can go after your assets in a community-property state. I have seen this happen on more than one occasion. While I have witnessed an individual be released from some debts their ex-spouse incurred, that is not the default situation. I have also seen an individual be required to pay 100% of an insolvent ex-spouse’s debt taken on during the marriage that the other person had no idea even existed. Banking on an “I didn’t know, your honor” defense is likely not going to work.
Pre-Wedding Considerations - How do I Protect Myself?
Before the wedding (and regularly thereafter), you and your fiancé should discuss where you stand financially.
Discuss the debts you'll each bring into the marriage and that you acquire post-nuptials, share your credit reports, any be open about your feelings around borrowing money, paying bills, desired lifestyle, and financial goals.
Once you know where you stand, talk about priorities in dealing with any debts. Make a plan for how you will pay off both your current debts and any you decide to take on together down the road. There are many ways to approach finances as a couple, and there is no specific right answer. For example, a couple may choose to have each spouse pay down their pre-marriage debt from their separate income but use pooled household funds to pay future joint debt. Some couples may also choose to use joint funds to pay off one spouse’s individual debt as part of their joint long-term plan to become debt free and save toward their dream retirement together.
If you live in a community-property state and don’t want to be liable for your spouse’s financial decisions during marriage, you can draw up a pre- or post-nuptial agreement. Such an agreement will clearly state each spouse’s obligations for debt and rights to property. It can be a good safeguard for both you and your spouse, and is significantly less stressful to come to an agreement while you are both madly in love rather than during divorce proceedings.
Navigating debt and financial planning discussions can be tricky, both pre and post-marriage. Every day at Rayhons Financial we help couples navigate these discussions. Call us at (480) 507-2425, we would be honored to support you in your journey.
The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.