Many younger people now go down the aisle with a load of debt on their shoulders. Student loans can be a crushing burden on those who carry them. Joining lives means combining lives, libraries and living room, but combining debts should be done with great care.
Spouses are not liable for a partner’s debt incurred before the marriage. Just because a person marries into debt doesn’t mean that he or she is now somehow automatically responsible for the other person’s debt.
To remain off the debt hook, however, partners should not under any circumstances combine separate debt into joint debt. This can happen when, for example, both spouses had pre-marital credit card debt and they discover that if they transfer both balances to a new card, they receive a lower interest rate. They apply jointly for the new card and transfer both previous card balances. Now both are liable for the full amount, not just his or her share.
In the case of student loans, the partner should take measures to protect his or her financial, mental and emotional health. He or she should avoid combining personal finances with the debtor spouse’s before thinking through the ramifications. A financially healthy married couple can maintain joint bank accounts, mortgages and retirement vehicles. However, marriages that involve a financially unhealthy spouse become more complicated (and a person carrying crushing debt is not financially healthy). Until a spouse gets his or her student debt load under control, combining bank accounts or credit cards is not prudent.
Since it can be difficult for an indebted person to secure credit cards or auto loans, it can be tempting to serve as a cosigner for a spouse. Unless the cosigner willing covers the cost of the obligation, it is not a good idea. If a spouse’s student loans become too expensive and necessitate a credit-destroying default, the cosigner must pay for any outstanding credit cards or loans that remain on his or her ledger. The cosigner’s credit may suffer if he or she refuses to pay.
Disagreements often lead to serious marital problems, and bad money management wrecks more marriages than any other cause. Frugality is the essence of wise money management. Partners should be very careful and deliberate with purchases. For example, a spouse should only co-sign on a loan for a partner if he or she is completely certain that either the spouse can make the payments, or the cosigner accepts making the payments if the spouse can’t. Furthermore, the couple needs to decide how joint loans will be taken out, for example, if they buy a home together, whether or not you want to take out a mortgage in joint names. The spouse with the better credit score should be careful about taking on more debt for the benefit of the other party. This should be done only if the cosigner is comfortable with being on the hook for that debt even when the other spouse is driving the car or the boat or whatever the debt paid for.
States handle debts incurred by one partner during the marriage in different ways. Some states consider that debt to be marital regardless of whose name it is in. However, if the debt is incurred without the spouse’s knowledge, and/or consent, then a claim can be made by that spouse that the other spouse wasted or dissipated assets.
The solvent spouse may want to add the partner as a joint accountholder on a credit card or just simply an authorized user. A joint accountholder is liable for what he or she charges; an authorized user leaves the original account holder fully responsible for the liabilities incurred.
When one spouse brings a heavy debt load to the marriage, a prenuptial or postnuptial agreement that specifically addresses debts and liabilities incurred before the marriage and those incurred during the marriage is a good idea. It should stipulate spousal responsibility for each type of debt if the marriage fails.
The couple should have a plan for paying off the debtor spouse’s debt either before the marriage or after the marriage. Learning to plan together financially is an essential marriage skill.
Couples joining their lives and finances may find it difficult to sit down, go through statements and deal with the specifics, but they will be glad they did in the long run. It’s also good to go over credit reports before the marriage so partners can identify any problem areas, and deal with them in a plan for credit-building and debt reduction.