Marriage, Money, and Debt
During the course of a marriage, debt is often a major issue between spouses. Prior to tying the knot, most people have developed their own habits of saving money, budgeting, paying bills and spending, in general. While one may balance their accounts daily, another may wait until the end of the week to do so. One person may prefer to have their bill payments automatically debited from their checking account, while the other prefers to mail their payments. These methods of budgeting and spending may have worked fine before marriage, but afterwards, these spending actions may not go over as smoothly.
Unfortunately, misunderstandings about money in marriage lead to frequent arguments and frustrated feelings. In order to avoid such clashes, smart couples engage in discussing and creating realistic plans about how they will manage their marriage, debt and finances. Some even go so far as to create a prenuptial agreement, as well as familiarizing themselves with state and federal laws pertaining to marriage, debt, and the commingling of assets.
Here are a few of the most common concerns about marriage debt, joint finances and assets:
If one spouse had bad debt prior to marriage, does their new spouse become automatically liable for this debt, too?
No. After marriage, debt that a person acquired beforehand is not automatically attached to a new spouse. However, depending upon how finances are handled after marriage, a new spouse can feel the sting of their spouse’s former debt. For instance, if couples commingle their assets after marriage, a creditor can attach those assets in an attempt to collect on any premarital debt. Also, the IRS is empowered to place a lien on any refunds due to a person because of unpaid taxes, student loans or other government loans. In cases where a couple has filed a joint tax return, many are surprised to find out that the refund they were expecting is reduced or will not be received at all.
If one spouse incurs excessive debt after marriage, are both spouses liable?
Maybe. Mostly, a firm answer depends upon the state in which the couple resides. Also, if one spouse files bankruptcy as a debt management strategy, creditors can pursue repayment from a non-filing spouse if the two were legally married at the time that the debt was incurred. In marriage, debt liability presents a major risk. However, couples can better arm themselves against such risks by knowing what state and federal laws have to say about any potential issues pertaining to marriage, debt liability, and joint assets.
How do the courts view real property that a spouse owned before marriage?
Generally, property owned before marriage is considered the sole and separate property of an individual spouse. However, if the non-owning spouse ever contributes their own money toward mortgage payments, repairs to the property, general maintenance or helps make improvements to the property, or if this spouse has free access to the property, the courts may then view the property’s ownership a little differently. Again, this depends on the state in which the couple resides, how long a couple is married, as well as the specifics regarding the time and money that the non-owning spouse put into the property.
The financial considerations of marriage, debt and the commingling of assets are all very important discussion points for people who are considering spending their lives with another. While these issues do present major stumbling blocks to some, those who are unafraid to discuss and plan for these realities find that they fare a lot better as a result. For couples who choose to sign a prenuptial agreement or simply familiarize themselves with state and federal laws governing marriage, debt and the protection of assets, many of these issues come as no surprise.
Thank you, Franrose, and I totally agree.
I once met an engaged couple who were just weeks away from their wedding and the bride-to-be had no idea how much money her future husband made each year. She thought it would be rude of her to ask him and she believed that, since they were in love, his annual salary didn't matter to their relationship. Discussing money makes some people very uncomfortable.
Many couples jump into marriage without first considering what their financial situation will be and/or what fiscal changes need to be made. People don’t really think about their future financial stability as a couple until it’s too late, which becomes a huge problem later down the road that most couples can no longer deal with. It’s very crucial to address this matter before making the leap. In this way, both parties are fully aware of what’s going on and what financial goals are in place. With that said, very good article!