This is not an uncommon scenario. In a study on marriage and debt conducted by Hoyes Michalos & Associates, we found that more than four in 10 marriages begin in debt. The average pre-marital debt load for these newly married couples typically amounts to more than $21,500. Not surprisingly, those with student loans were the most likely to bring significant debt to the marriage bed — more than $35,000 each on average — but all age groups were likely to bring some amount of credit card debt, car loans or other unsecured debt.
The good news is the existence of debt does not mean that you should put an end to the relationship. Before making such a drastic decision, make sure you understand how debts are dealt with legally in marriage and what else you should do to make sure the situation turns out well after the wedding bells have stopped.
What’s His, or Hers, Is Not Yours
Marriage may be about joining forces, but this does not have to apply to your potential spouse’s debts. Legally you are not liable for anyone’s debts just because you got married. The only way creditors can pursue you for someone else’s debts is if you agreed, in writing, to guarantee those debts or you co-signed for the initial loan.
If you have, then they are considered joint debts. Legally, where two people owe a joint debt, creditors will look to both parties to collect the full amount owing. However for a sole-owed debt brought into the marriage by one partner, these debts are solely the obligation of the original borrower.
That means that you can, as far as your credit goes, keep your finances separate while the indebted partner deals with their financial problems. Even if your spouse declares bankruptcy, as long as you do not have any joint debts, their bankruptcy does not impact your credit rating and no one can pursue you for payment.
Beware however that this does not apply to joint debts you accumulate once married. If you both sign for a new car loan, perhaps because your spouse doesn’t qualify on their own, and that spouse declares bankruptcy the lender will look to the co-borrower for repayment of the full loan, including any interest and penalties.
Supplementary cards also fall into this category, making the supplementary cardholder fully responsible for the debts of the primary cardholder once they begin to use the card.
Communication Signals Commitment
While it’s nice to know you will not be obligated to repay your new spouse’s personal debts legally, you are however combining your household and that means combining your financial decisions. It is important that you talk about any debts before you get married.
This is more than just a cliché. Our same study showed that 36 percent of potential partners do not discuss or divulge their debt prior to getting married. This lack of communication can be a signal of events to come. Couples who do not discuss their debt problems prior to marriage are twice as likely to increase their debts after marriage.
Don’t be afraid to ask the tough questions. Learn the exact details — how much debt do they owe and to whom do they owe it? As part of this dialogue, be sure to discuss your potential spouse’s spending habits. How they got into debt, and what they plan to do about it, is as important to know as how much they owe.
It’s their commitment to dealing with these debts that you should assess prior to getting married, so your potential partner’s money problems don’t become a marital stress down the road.
Combining the Family Finances
If you decide that you love your partner no matter what and decide yes, you are going to marry them, your next decision is how to treat your household finances — separately or together.
(Related – Financial things to do after a divorce)
As a starter, know that it’s better that you manage your debt, both old and new, together.
- Build a repayment plan ahead of time. Prepare a family budget and agree, up front, who will be paying what in terms of household expenses and debt payments.
- Avoid co-signing for old debt. If you do, know that you may become liable for repayment and doing so may affect both your credit ratings.
- Consider maintaining separate bank accounts until both spouses have their financial house in order. If you do decide to open a joint bank account, make sure this account is at a different bank than where the indebted spouse owes money. This way if they fall behind, the bank cannot scoop payments out of your joint account.
- Discuss any major purchases together and know how you are going to pay for them. Postpone any new debt until after the old debt is paid off or is at least under control.
- Keep any assets you may own currently in your name. This way, if your spouse has to file for bankruptcy, their creditors cannot access those assets. New assets may be more difficult to treat this way, especially if they are purchased with co-mingled funds. Any bankruptcy trustee will look carefully at marital assets to determine who the rightful owner is.
Getting married is one of the most important decisions you will make. Going in with your eyes wide open in terms of the status of each person’s finances, and making appropriate plans, is likely to increase your chances of a long and happy marriage.
Doug Hoyes has extensive experience resolving financial issues for Canadian citizens. A Licensed Bankruptcy Trustee and co-founder of Hoyes, Michalos & Associates, he is also a Chartered Professional Accountant (CPA), Chartered Insolvency and Restructuring Professional and Business Valuator. He regularly comments on a variety of TV, radio and other media outlets on topics surrounding bankruptcy and writes a column for the Huffington Post. Hoyes has been a Licensed Trustee since 1995 and has testified before the Canadian Senate’s Banking, Trade and Commerce Committee in 2008.