Andy Hill proposed to his wife, Nicole, in 2009. Up until that point, their money conversations consisted of their weekend or vacation plans. When they started to plan their wedding budget, the topic of debt soon came up. Andy had about $40,000 worth of debt—$30,000 in student loans and $10,000 from a HELOC—and his wife had a car lease.
Nicole didn’t care about the possible complications of marriage and debt, and agreed to marry him despite it.
“I was pretty happy that my wife-to-be was averse to debt,” Hill said. “We had a big wedding [and] ended up paying off my HELOC completely, and it was a great way to start off our marriage.”
Andy and Nicole’s situation isn’t that far off from what other couples face today. Many people enter a marriage with debt in tow.
Marriage and debt can bring up complex questions, such as whether you’re responsible for your spouse’s debt before marriage, questions about common law property states and what happens if you divorce.
It’s important to understand your responsibilities before you walk down the aisle. Read on to find some general possible answers to some common questions when it comes to marriage and debt, but bear in mind that specifics may differ case-by-case.
If I marry someone with debt, does it become mine?
Generally speaking, there isn’t much of a difference between debt taken on before and after you’re married. In other words, if your spouse has consumer debt, it can become your responsibility as well.
With nonconsumer debt such as student loans, the debt is the responsibility of the individual. However, depending on the type of student loan (federal or private), you or your spouse’s monthly payments can go up or down, especially if you’re on an income-driven payment plan.
Debt obligations also depend on where you live. Scott Henderson, an accredited financial counselor and founder of Simplifinances, said that responsibility for debt depends on whether you live in a community property state—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin—or a common law state.
“In a community property state like Texas, where I live, all debt incurred during the marriage becomes the responsibility of the couple,” Henderson said. “For common law or equality states, each person is ultimately responsible for their own debt unless it’s considered out of necessity, like for food or shelter.”
The IRS defines a community property state as one in which any debt, income or other assets acquired during marriage are considered joint property. In some cases, you can keep these separate—for example, if you used separate funds earned before marriage to purchase separate property, or you received money as a gift or inheritance.
One important distinction to note: This doesn’t necessarily mean that debt your spouse incurred before marriage is your responsibility. Of course, it’s up to you how you and your spouse want to work it out.
What happens to our debt if we divorce?
In the event of a divorce or legal separation, whoever took on the debt is typically the one responsible for it unless it was taken on based on a family necessity or you have a joint account.
For those residing in community property states, a creditor typically considers debt taken on after you married to be joint debt. In other words, you could be on the hook for debt your spouse incurred even if your name isn’t on the loan documents, unless the loan was taken out before you got married.
If you live in a common law state, you and your spouse are responsible for your own respective debts. In the event of a divorce, your debt is yours alone and vice versa. There are exceptions, such as if both of you took on the loan (like a mortgage for which you both signed), or the debt benefitted the marriage (like for household necessities). In this case, both of you will be responsible even after a divorce.
In the event of a divorce, Henderson suggests researching the nuances of your state laws so you’re aware of your rights.
“The only time one spouse is not responsible for the debt is if, in the loan agreement, it stipulates that this obligation cannot be transferred to another party,” he said. “But the court could decide what happens, depending your situation.”
Whether you live in a community property or common law state, individual state laws can vary widely. It’s best to speak with a lawyer if you want to understand the nuances of your state laws, especially if you’ll need a prenuptial agreement before you get married.
What about bankruptcy?
In a community property state, any eligible community debts for both you and your spouse should ideally be discharged in the event of a bankruptcy. However, creditors may still try to collect payment from the spouse who didn’t file for bankruptcy. In a common law property state, only joint debt and the debts of the person filing for bankruptcy would be discharged. The details may depend on which type of bankruptcy is filed (Chapter 7 versus Chapter 13).
As for which debts can be discharged, most unsecured consumer debt qualifies. If you have secured debts—meaning you have an asset that’s tied to the debt—your debt can be discharged after the creditors divide up what are known as your nonexempt assets. That means if you live in a community property state, your assets could be up for grabs if your spouse files for bankruptcy if their debt cannot be discharged.
Bankruptcy law can be complicated, so consult a legal professional for your specific situation.
Both Andy and Nicole are still happily married—they’ve since become debt-free, including their mortgage. The lesson they’ve learned is that it’s important to work together and understand how debt can impact their finances. Working together on a sound financial plan can help make debt more manageable in a marriage. Make sure you take steps to consider what you and your future spouse are bringing into the marriage, including debt and assets, before taking the plunge.