How to deal with debt while married
Debt is always an important issue in marriage, regardless of whether you are a newly-wed couple or have been married for many years. You keep on arguing with your spouse about who is responsible for paying the debts and often it leads to nasty fights. Arguments lead you nowhere. Instead, you should try and sort out your liabilities.
There are several ways in which married couples can handle their debts. But before you start to deal with your debts, do learn about the rights that you and your spouse have under the laws of your state.
Every state has its specific laws concerning who owns what debt, but in general state laws can be divided into two types on the basis of laws:
- Community Property States
- Common Law States
Handling debts in a community property state will have its positives and negatives. In a community property state, you will be singularly responsible for the debts that you incurred before marriage unless you and your spouse decide otherwise after marriage. However, any debt that you incur during marriage is both your and your spouse’s responsibility.
If you get into debt and the creditor begins collection actions or if you file for Chapter 7 Bankruptcy, the creditor/trustee can seize both your and your spouse’s marital properties and income in order to pay off the debts. At a glance, it might appear terrible, but it can be quite advantageous too because the debts get paid faster when both of you strive to pay it off. Moreover, in Chapter 7, both of your eligible community debts will be discharged.
The sole exception to community property rule occurs in Texas. Under Texas law, if there is a disagreement as to who owes on the debt, the judgment and requirements vary from one case to another.
The only way to escape a community property state’s joint property laws is to sign a pre-or-postnuptial agreement. In fact, nuptial agreements are gaining popularity with growing complexities emanating from debts. You and your spouse/partner can either go for a pre or postnuptial agreement to sort out who should owe what and thereby avoid all those tiffs that arise over debts and bill payments.
Every state has its set of rules regarding what a pre/postnuptial agreement can and cannot cover. But to make sure that your agreement stands up in court, both you and your spouse/would-be spouse should consult lawyers. You and your partner can consult a lawyer together. But to avoid conflicts of interest, it is advised that you and your spouse/would-be spouse consult your own individual lawyers.
Next comes the Common Law States. These states, unlike the Community Property States, do not hold both the spouses responsible for debts by default. Here, only the spouse taking out the loan is liable for its repayment; the other spouse is in no way responsible, unless the loan has been co-signed by both the spouses. If you and your spouse have a joint account and your spouse takes out a loan, then the creditors can reach only half of the money in the account. In addition, a creditor cannot reach joint property held by two people as one legal entity and is meant for married couples exclusively.
Also in a Common Law State, you can file for bankruptcy without affecting the obligations and assets of your spouse. Even if you include your debts that you owe jointly with your spouse, then those debts may be partly or totally discharged and your joint assets may be used to pay them off.
Now that you have a fair idea about the laws concerning debt obligation in marriage, you should chalk out a plan in consultation with your spouse and start dealing with it right away. With some smart management of your debts, you can actually avoid all the unnecessary bitterness in your married life and restore your happiness.