You are still basking in the memories of the recent wedding. It was everything you planned and hoped for. It is all so official now. You are living together, he has put his change of address in and the mail now comes to your marital home. As you look at the piece of mail in your hand addressed to your spouse you are filled with a sense of new beginning.
You decide to open the Visa statement, after all you are now married. The two have become one.
As you look down at the statement you are suddenly filled with questions, you never thought to ask before. I get these questions regularly and thought I should provide some answers.
Am I now responsible for my spouse’s debt?
Relax, each person’s debt is as unique to them as their fingerprints. You can not automatically be responsible for someone’s debt merely by the fact that you are married. That is a very common misconception. I have had people tell me that their lawyers or accountants had advised them otherwise.
Except for CRA, the only time you can legally be called on to pay someone else’s debt, is if you personally guaranteed the debt, you co-signed for the debt or obtained the debt together as joint debtors. Technically that is now your debt. You are always responsible for your own debt.
Not being legally liable does not mean that you may not be called upon to help assist with payments. If your partner is in over their head, they may ask you to voluntarily help with the debt. Also, you may be asked to carry a bigger portion of the household expenses so they can get their debt under control.
A partner carrying a lot of debt will indirectly affect you.
Whether you keep your finances separate from your partner or have everything in joint accounts, money can be a divisive issue. This podcast talks about dealing with debt in a relationship.
How does marrying someone with a lot of debt affect me?
While you are not directly responsible for your partner’s debt, you can very easily be affected by their debt.
If you are married to someone carrying a lot of debt, at the outset you will not be sharing the same financial goals. You may be interested in saving for a house or a trip, while they will be focused on maintaining their debt load, or in attempting to pay it down. Family resources you were counting on pooling together may be used toward paying down their debt. Their resources are not available to help with joint goals moving forward.
Being joint on a loan or mortgage may not be an option. Even though they may have great income, their debt load could make them a liability.
In addition, carrying a lot of debt involves carrying a lot of stress. Stress that will pour into the relationship, causing strain. Finances are such an integral part of our lives that if one partner has excessive stress because of their debt it can create marriage problems.
Discussing personal finances should be thoroughly discussed prior to legally coming together.
What if my spouse cannot pay their debt?
Carrying large unaffordable debt loads puts stress on individuals and a strain on their relationships. If you have decided to keep your finances separate and not talk about money, you may have no idea of the volume of stress your partner is under, or the indirect effect it is having on your relationship.
If your spouse’s debt is at the point that creditors are garnishing their wages, in Manitoba your partner will be losing a third of their income toward debt payments. Most often if one person in a relationship is losing a third of their income, the other partner in the household will be suffering some of the consequences.
If you are aware of someone struggling with a large debt load, you should strongly encourage them to seek out a Licensed Insolvency Trustee. We are trained to assist in these situations. We have the same goals as you would. Bankruptcy is always a last resort when we counsel someone struggling financially. The earlier they seek help, generally the more options that are available to them. Sometimes all that is needed is some help with budgeting, other times, reducing their debt with a Consumer Proposal is an excellent option.
Does getting married affect my credit rating or my ability to get credit?
This is a question I get quite regularly. Just like debt, each person’s credit rating is unique to them. Your credit rating is yours and your spouse’s credit rating is theirs. If they have a great credit rating that will not improve yours and vice-versa.
If you are joint on a debt or have co-signed for your partner and they do not pay the debt, your credit rating will take a hit if you do not start taking responsibility for the debt. Never co-sign, even for your spouse, unless you deem it absolutely necessary, or if there is a benefit to you in incurring that debt. Co-signing means you agree to take over the debt if the primary borrower is not able to make payments.
Like carrying a lot of debt, if your spouse has a bad credit rating, even if they no longer have debt, it can affect your ability to obtain credit together for things like houses or vehicles.
What happens if one of us dies?
No one wants to think about this, or even talk about it. Yet it is important to know where you stand financially in the event of such misfortune.
In the event that your spouse dies, you are not liable for their debt – again, unless it is a joint debt, or you have co-signed for the debt.
It should be noted that their assets must first be used to pay their debt before you can inherit anything as their spouse. Again, in this way you can be indirectly affected because assets you may have been counting on to assist you, may first have to be liquidated and the money sent to creditors. If there is a mortgage on a jointly owned house, the remaining spouse can usually assume the entire mortgage. However, if you cannot afford the mortgage payments without spousal income, you need to sell the property. If the house was in joint tenancy, the property automatically goes to the surviving spouse, so any proceeds from the sale would be yours, subject to the mortgage.
How does a separation or divorce affect our debt?
Financial difficulty is one of the leading causes of marital break ups. It is not surprising. The strain of financial pressure affects nearly every area of your life. It affects where you can go, what you can do, your goals, your plans, your dreams. It even affects physical and mental health.
Many separation agreements attempt to deal with debt by assigning the responsibility to one partner or the other. Be careful with these arrangements. If the creditor did not agree that you are no longer responsible for a joint debt, you can still be called upon to pay it, regardless of what the separation agreement states.
Unless you reorganize a debt to remove your name, regardless of a separation agreement, you remain responsible for any debt you had liability for in the marriage.
The takeaway
Talking about finances before you say “I do” is highly recommended.
When the debt seems overwhelming, contact the professionals. LCTaylor has been assisting couples in financial trouble for years. Our track record speaks for itself.
Dealing with debt together – talking about it – getting professional help – can absolutely save a marriage.
Bonnie Hooley, LIT
