22 May Dealing with debt as a couple
In the past, we’ve blogged about the topic of mortgage and divorce. There is also the question of how to deal with debt in a marriage. What happens to the debt each individual has before getting married? Will the individual’s debt affect the other person’s credit score? These are some of the questions we often hear.
Normally, each spouse brings into the marriage their own individual debt. Then, there is the debt that will come once they become a couple. The former still needs to be dealt with. It is one way of solving some of the stress that comes with financial decisions that need to be made. It might be a good idea to come up with a budget for each spouse to pay down the debt they have as single individuals. The good news is that the debt each person brings to the marriage remains that person’s responsibility – the other spouse does not need to worry about it. The only exception to this rule is if there is a co-signed on any credit account from before or after the marriage. This is important to understand in case the marriage ends up in divorce: any debt that the spouse brought into the marriage remains their debt.
When it comes to credit scores, if your spouse takes out a mortgage/loan without your name on it and defaults on the loan, your credit score is not affected. Just make sure your name is not on the credit account. Otherwise, your credit score will be affected. If your name is not part of any of the documents, your credit score is not affected, even if your spouse files for bankruptcy or a consumer proposal.
What about debt accumulated as a couple? This questions is a bit more complex, as you may have personal debts related only to one spouse or you may have joint debts. In the case of the former, if the personal loan is signed without the other spouse’s name on it, it should not have any impact on that person’s financial situation. If it’s taken jointly or if you the other spouse co-signs, that they are both liable. In other words: any debt accumulated after a marriage takes place is both spouses’ responsibility if both names are on the documents.
One possible solution is to have an honest conversation with your future spouse before the marriage exchange vows take place. Money is often the major reason in marriage problems which leads, many times, to divorce. Here’s a few tips:
– Find out how much money your future spouse owes;
– Be honest to your future spouse about how much you still owe as well;
– Discuss how each of you feels bout debt and managing money; if you can’t agree on a plan, chances are you will have problems down the road;
– Discuss your financial goas with your future spouse. As one expert put it, seeing eye-to-eye on money questions is essential.
– If your future spouse has bad credit or is not responsible with money, you may want to consider to adding your name to joint credit cards.
– You may also want to consider signing a prenuptial agreement.
At the end of the day, open communication about finances is the key to a successful relationship. You are responsible for your own debt, unless you co-sign your name to another loan. At that point, you are also responsible for someone else’s debt. If you have any questions, contact us.