The Law Offices of Alfred F.M. de Prado

2014 Crompond Road, Yorktown Heights, NY 10598 (at Route 202)

Call us at (914)962-4100

Debt and Marriage: When Do I Owe My Spouse's Debts?

Whether you are liable for your spouse's debts depends on whether you live in a community property or common law property state.

Whether you and your spouse are liable for each other's debts depends mostly on where you live. In the handful of states with "community property" rules, most debts incurred by one spouse during the marriage are owed by both spouses. But in states that follow "common law" property rules, debts incurred by one spouse are usually that spouse's debts alone, unless the debt was for a family necessity, such as food or shelter for the family or tuition for the kids. (These are general rules; some states have subtle variations in how they treat joint and separate debts.)

These rules also apply to same-sex marriages in the states that allow them (Connecticut, Iowa, Massachusetts, and, as of September 1, 2009, Vermont) and to same-sex domestic partnerships and civil unions in states where those relationships are the equivalent of marriage (California, Connecticut, New Hampshire, New Jersey, Oregon, and Washington State), but not in states where the relationship does not confer all the rights of marriage (District of Columbia and Maine).

Community Property States

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (In Alaska, spouses can sign an agreement making their assets community property, but few people choose to do this.)

Debts. In community property states, most debts incurred by either spouse during the marriage are owed by the "community" (the couple), even if only one spouse signed the paperwork for a debt. The key here is during the marriage. So if you incur a debt, such as a student loan, while you're single, and then get married, it won't automatically become a joint debt. (An exception is where a spouse signs on to an account as a joint account holder after getting married.)

After a legal separation or divorce, a debt is owed only by the spouse who incurred the debt, unless the debt was incurred for family necessities, to maintain jointly owned assets (for example, to fix a leaking roof), or if the spouses keep a joint account.

Income and property. In community property states, a couple's income is shared as well. All income earned by either spouse during marriage, as well as property bought with that income, is community property, owned equally by husband and wife. Gifts and inheritances received by one spouse, as well as separate property owned before marriage that's kept separate, are the separate property of one spouse. All income or property acquired before or after a divorce or permanent separation is also separate.

What property can be taken to pay debts? In a community property state, creditors of one spouse can go after the assets and income of the married couple to make good on joint debts (and remember, in a community property state, most debts incurred during marriage are considered joint debts).

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When Linda's business fails, she owes $45,000 to suppliers and other creditors. Because Linda and her husband live in a community property state, these creditors can sue both her and her husband to collect the money owed. Linda no longer has an income to take, but her husband's is significant, and her creditors are able to garnish $3,000 of her husband's income per month until the debts are paid off.

Creditors can go after joint assets in a community property state no matter whose name is on the title document to the asset. For example, a business owner's name may not be on the title to her spouse's boat, but in most community property states, that won't stop a creditor from suing in court to take the car to pay off the business owner's debts (assuming the boat was purchased with community funds, and not separate funds).

As to one spouse's separate debt, such as one spouse's child support obligation from a prior relationship, or a debt in one spouse's name only where the spouse hid the fact that he or she was married, a creditor can go after only that spouse's half of the community property to repay the debt.

Removing a spouse's liability. Couples in community property states can sign an agreement with each other to have their debts and income treated separately. Signing a pre- or postnuptial agreement like this can make sense for a couple before one spouse goes into business. (But if you're already in business, signing an agreement now won't protect your spouse from liability for business debts that you already owe, only from liability for future business debts.)

You can also sign an agreement with a particular store, lender, or supplier, stating that the creditor will look solely to your separate property for repayment of any debt, essentially removing your spouse's liability for any obligation or debt from the contract -- if you can get the other party to agree.

Bankruptcy. Even if only one spouse files for Chapter 7 bankruptcy in a community property state, all of the eligible community debts of both spouses will be discharged (wiped out).

Common Law States

In a "common law" property state, which is any state not listed above as a community property state, debts incurred by one spouse are that spouse's debts alone, and income earned by one spouse does not automatically become jointly owned.

Debts. Debts are owed by both spouses only if the debt benefits the marriage (for example, the debt was for food, clothing, child care, shelter, or necessary household items) or the debt was jointly undertaken -- for example, if both spouses signed a contract requiring them to make payments on the debt, if both spouses' names were on an account or title to property, or if a creditor considered both spouse's credit information before making the sale or loan. The same rules hold true after permanent separation but before divorce.

All other debts, such as a business debt from one spouse's business or a car loan for a car whose title is in one spouse's name, are considered a spouse's separate debts.

Income and property. Generally, in most common law states, income earned by one spouse during the marriage belongs to that spouse alone, if it is kept separate. And any property bought with separate income or funds during the marriage is also separate property (unless the title to the property is put under both spouses' names). In addition, gifts and inheritances received by one spouse, as well as property owned by one spouse before marriage (and kept separate), are the separate property of that spouse.

However, if income earned by one spouse is put into a joint bank account, that income or property becomes joint property.If joint funds are used to buy property,the property is also owned jointly(unless title is taken in the name of one spouse only). Jointly owned property can include equity in a jointly owned house, household goods, jointly owned vehicles, and jointly owned bank accounts, retirement plans, and stocks or mutual funds.

As you may have guessed, for property that has a title document,such as real estate and vehicles, whose name is on the title indicates who owns the property in common law property states. For instance, if a car is in only one spouse's name, it's considered that spouse's separate property. If a house is in both spouses' names, the house is joint property, even if one spouse doesn't contribute anything toward the mortgage payments.

What property can be taken to pay debts? In a common law property state, creditors of one spouse can go after the income or property of the other spouse -- or joint property -- only if the debt was incurred for joint purchases or for purchases that were made for family necessities. In some common law states, a creditor can also go after joint property to pay the separate debts of one spouse (even if the debt was not family-related), but in most states a creditor can take only 50% of the money in a joint account.

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Simon's auto detailing business fails owing $30,000 to suppliers and other creditors. Simon runs the business by himself, without the help of his registered domestic partner, so the business debts are considered his separate debts. Because Simon lives in a state with common law property rules, these creditors cannot garnish his partner's income or take his partner's separate property, though they may be able to sue to take money from the joint bank account Simon has with his partner. Whether the creditors can go after other property held jointly by Simon and his partner, such as a jointly owned house, depends on the state they live in and how they hold title to the house.

In about half of the common law property states, a creditor cannot go after certain joint property to pay the separate debts of one spouse: If a couple holds property in "tenancy by the entirety," a creditor can go after the property to pay only joint debts, not separate debts of either spouse. And in some states, such as Florida, most joint property is automatically considered to be held in tenancy by the entirety and so is immune from being taken to pay one spouse's separate debt.

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Will Horton rents party supplies and construction equipment in Albany, New York, but his business is struggling to pay its bills. Will's wife Amanda is an independent jewelry appraiser who makes a good living. When Will can't pay his main supplier for several months, the creditor threatens to sue the Hortons. Because the Hortons hold title to their house in "tenancy by the entirety," a creditor cannot put a lien on the house and force its sale as long as Amanda is alive. If Amanda and Will were to sell the house, however, the creditor would have to be paid off with Will's half of the proceeds.

Ask a local lawyer about your state's rules.For further information on whether a creditor can go after your joint property to pay the separate debts of one spouse, see a debt collection or bankruptcy lawyer in your state. One good resource for finding a lawyer in your state is Nolo's Lawyer Directory. Nolo's directory provides a comprehensive profile for each attorney that tells you about the lawyer's experience and training, and Nolo has confirmed that every listed attorney has a valid license and is in good standing with their bar association.  As to a spouse's separate property, creditors of one spouse cannot legally reach the other spouse's money, property, or wages to repay a separate debt.

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When Scott's business fails, he owes $53,000 to suppliers and other creditors. Because Scott and his wife live in a state with common law property rules, these creditors can sue Scott to collect the money owed, but cannot go after Scott's wife's inheritance. In some states, the creditors will be able to go after joint assets such as a joint bank account.

Your spouse shouldn't guarantee your business debts. It follows that if you live in a common law state and you own a business that your spouse is not involved with, you don't want your spouse to personally guarantee any of your business debts. Unless your spouse cosigns a loan or personal guarantee, your spouse won't be liable for your business debts -- if you keep your money and property separate.

Bankruptcy. In a common law property state, if only one spouse files for Chapter 7 bankruptcy, only that's spouse's joint and separate debts would be discharged; the other spouse's separate debts would not be discharged.

Text Box: Further Help With Debts and Marriage

For more information on sorting out personal debt and marital property, see Solve Your Money Troubles: Debt, Credit and Bankruptcy, by Robin Leonard and Margaret Reiter (Nolo). For guidance on business debts and spouses' liability, see Save Your Business: 10 Crucial Strategies to Survive Hard Times or Close Down & Move On, by Ralph Warner and Bethany K. Laurence (Nolo). If you want to learn about how your spouse's credit can affect yours, see Nolo's article Protect Your Good Credit After Marriage. by: Bethany K. Laurence , J.D. 

Copyright Nolo

The Law Offices of Alfred F.M. de Prado

2014 Crompond Road, Yorktown Heights, NY 10598 (at Route 202)

Call us at (914)962-4100