Think you’ve finally found the love of your life? Before you start making wedding plans, you need to have a serious talk about finances – especially debt.
In most states, you are not legally responsible for bills racked up before getting married. However, the state you live in could drastically alter how much debt you will be liable for after you take your vows.
Common law states.
The IRS says most states operate under what is called common law. If a married couple opens a joint account or gets a shared credit card, they will both be responsible for paying back the debt.
If only one spouse puts their name on the account, like a loan for a boat, only that person is liable for the loan. That also means bill collectors can’t come after you if your spouse fails to pay the bills on that boat.
There are some exceptions for necessary joint household expenses. Debt that was racked up for things like child care, housing or food must be shared by both parties, even if a joint account was not created.
Joint liability on shared accounts goes for new and existing credit lines.
If you sign up as a joint holder on your husband’s existing credit card, you will be liable for everything charged to that card, even his wild bachelor party.
Shared bank accounts work the same way. Once you both sign on, the balance becomes a shared asset, regardless of who deposited the money and when.
That could work against you if creditors come after your spouse’s debt and want to go after the money in your shared account.
For the most part, the rules are the same for same-sex couples and civil unions in states where they are deemed equal to marriage.
However, some states do not give same-sex unions all the rights of marriage and have different laws regarding debt.
“Talk to your partner about
finances before you get married.”
Community property states.
The laws are very different in America’s nine community property states, where all property and debt is shared once a couple marries:
- New Mexico
In community property states, you are not responsible for most of your spouse’s debt incurred before marriage.
However, the IRS says debt taken on by either spouse after the wedding is automatically a shared debt.
Even if your spouse opens up a line of credit in their name only, you could still be liable for that debt. Creditors can go after a couple’s joint assets to pay an individual’s debt.
The rules vary by state when it comes to collecting taxes. In some community property states, premarital taxes can be collected from shared, post-martial accounts.
The government can even put a lien on part of any community property, like a home.
There are also exceptions for separate debt, like child support from a previous relationship. In that case, the creditor can only go after the person responsible for the debt.
One option around joint liability is to sign a legal agreement stating all debts and income are treated separately.
This can be done as a prenuptial or postnuptial agreement and is common when one spouse opens their own business.
Some lenders may also agree not to go after your spouse for any debt you incur, but it is rare and you’ll need to make sure that is written in the contract.
Marriage is a serious financial decision that shouldn’t be taken lightly. Not only will you be responsible for another person’s debt, but it can also hurt your credit history.
If your spouse has a bad credit score, a joint loan could mean higher interest rates or you may get denied. If your spouse declares bankruptcy, you could lose community assets to pay the debt.
Your best stance is to talk to your partner about finances before you get married. Then check with a legal expert to see how the laws in your state will affect your personal liabilities.
Photo source: sheknows.com.