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You’ve got your finances in check, but your soon-to-be spouse doesn’t. You love your partner, but you’ve put in the work to get your financial life organized, and you want to avoid being held accountable for their past financial mistakes. Here’s how to protect yourself when marrying into debt.
It’s important to help your spouse work through their past financial missteps. Marriage is about partnership. However, safeguarding your credit is beneficial for both of you. If you run into financial difficulties, you’ll have a solid credit history to rely on.
Understand When You’re Responsible for Your Spouse’s Debt
Many believe that once you marry, you automatically inherit your spouse’s previous debt and poor credit. This isn’t the case, says Sally Herigstad of CreditCards.com. Your credit histories stay independent of one another.
Your spouse's debts don’t automatically transfer to you. Also, credit card companies don’t care if you adopt your husband’s name after marriage. A month after you tie the knot, you can apply for a credit card under your new name, and the process should be no different from what it is now.
While you’re not responsible for your spouse’s past debt, things change once you begin accumulating debt during your marriage. When you open joint accounts, apply for shared credit, cosign, or add your spouse as an authorized user—your credit report will reflect these changes, according to legal website Nolo.
With joint credit, both partners are equally responsible for the debt. It’s not divided equally, as Yahoo Finance points out. If your spouse can’t pay, you’ll be fully responsible for the debt as well.
There are instances where you might be liable for debt your spouse accumulates during your marriage. Nolo explains the guidelines in certain "community property" states:
This means that even if your spouse incurred credit card debt on their own, you may still be held responsible for it. Each state evaluates different factors and has additional rules regarding when a debt is considered a community obligation. Typically, if the debt was for something benefiting the marriage, it’s likely deemed a community debt. However, if it was for a personal purchase benefiting only your spouse, it’s less likely to be considered community debt.
This is typically not the case in common law states, where you’re usually only responsible for debt that is in your name. While most states follow common law, the following are community property states:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
Prenuptial agreements can certainly help in this situation. With legal assistance, you can determine which debts belong to whom and avoid confusion. For more details on common law vs. community property states, check out Nolo's full post.
Discuss Your Financial Histories
Before committing to spend your life with someone, it’s crucial to understand their financial situation. It may not seem important now, but money is one of the leading causes of marital conflicts. Preparing now will make things easier later on.
Experts advise reviewing your credit reports and histories together. Take note of how your financial attitudes and habits differ. Avoid being judgmental, but if there are any delinquencies, try to understand the cause. Get to know your spouse's perspective on money. This way, when financial matters come up later, there won't be any unpleasant surprises.
Think About Delaying Marriage
If your fiancé’s financial issues are particularly severe, MSN Money suggests postponing the wedding until they have their finances sorted out. One MSN reader shared her experience of being about to marry someone with significant debt. Herigstad, writing for the site, advised:
I recommend waiting at least one to two years before tying the knot. Give your partner time to improve his credit score, settle any back taxes, and clear other debts on his own. If he’s considering bankruptcy, it’s better to resolve that before marriage. (Although one spouse can file for bankruptcy independently, it can complicate things.)
If you don’t want to follow this path, at least consider delaying the opening of joint accounts after marriage. Let your spouse get their finances in order before applying for shared credit or opening joint accounts. Herigstad suggests waiting until your spouse has maintained a clean financial record for several years.
Decide How You'll Make Purchases Together
Think about how you’ll make purchases with your spouse. In the previous section, we recommended delaying joint credit applications until your partner's financial habits improve. However, even if their habits have improved, there are other reasons to hold off on applying for joint credit. For example, their poor credit score could result in higher interest rates for you or might even prevent you from being approved for credit.
When determining how you’ll make purchases together, there are several factors to consider. Every relationship is unique, so create a plan that works for both of you. But when making decisions, it’s important to understand the risks involved with each option. Here are some factors to consider.
Applying for Credit Separately
If you’d rather avoid applying for joint credit for any of the reasons mentioned earlier, you can opt to apply for credit on your own. For example, if you want to finance a car, you can apply based on your strong credit history, get approved, and then simply have your spouse contribute their share of the monthly payments.
It’s a straightforward option, but it carries its risks. Nolo highlights the following:
If only your name is on the loan agreement, your spouse could drive off with the new car, and you’d be solely responsible for repaying the loan. If you miss payments, your credit score would take the hit alone.
That’s certainly a disheartening scenario. If your spouse is truly reckless or dishonest, there’s a higher chance they could take advantage of you when they don’t share any responsibility for the loan.
At this point, one might wonder why you’re marrying this person in the first place. However, this is more about finances than relationships, so let’s continue.
Cosigning
If your spouse is about to make a significant purchase, they may need a cosigner. If you decide to help, be prepared for the responsibility. Understand that you’ll be held accountable for the debt if your spouse is unable to make the payments. Only cosign if you’re fully ready to take on the payments, if necessary.
For more information, read our post on how to determine whether you should cosign a loan.
Adding a Joint Account Holder
You also have the option to add your spouse as a joint account holder on a credit account. With this arrangement, the joint holder becomes responsible for the debt, as CreditCards.com explains. While adding them won’t directly harm your credit score, it could have an impact if your spouse uses a large portion of your available credit. According to FICO, 30% of your credit score is determined by how much credit you’re utilizing:
...when a large percentage of available credit is used, it can suggest financial strain, indicating a higher likelihood of late or missed payments.
Here's an important point to remember: If your spouse adds you as an authorized user to their account, your credit score could be negatively affected if that account is not well-managed.
Adding an Authorized User
You can also opt to add your spouse as an authorized user. While it won’t harm your credit report, there are some risks. With this option, your spouse isn’t responsible for making payments, which can lead to complications. As Experian warns:
...how they manage your account can influence your creditworthiness. Keep in mind that you are fully accountable for any charges made by an authorized user. If they misuse the privilege, you could end up with significant debt that you may not be able to repay.
In essence, it’s the same risk as applying for credit individually. You’re trusting them to pay, but they’re not legally obligated to—you are.
Choosing how to buy a home together is a significant decision. If you're concerned about your spouse’s credit, you might think about applying for a mortgage on your own. Mark Cappel from Bills.com breaks down the advantages and disadvantages of both options: applying together versus separately.
Applying Jointly: The Benefits
Reasons to apply jointly:
Your spouse has a low credit score, but a high income. Their income might help you qualify for a better loan, despite the poor score.
Your spouse may feel more secure if their name is also on the mortgage.
If both spouses are on the mortgage and one passes away, the surviving spouse automatically retains ownership of the home, without needing to go through probate (this depends on how the property is titled, according to the site).
Reasons to apply individually:
If you face financial issues and your mortgage payments are delayed—or worse, if you experience foreclosure—and your spouse has had time to rebuild their credit score, applying for a mortgage individually may work in your favor. If you went this route, only your credit would be affected. As Cappel explains: "your spouse becomes a credit score lifeboat that allows you two to continue to find credit."
Now imagine another unfortunate scenario: you get a divorce. One of you will likely want to retain the house. With a joint mortgage, you’ll have to refinance to remove one name from the loan. If the mortgage was under only one name, the spouse who wants to stay may be able to avoid refinancing.
Cappel actually suggests the second option for households that are financially able to manage it.
For these reasons, I recommend that if spouses, partners, family, or friends who want to share a house together can afford it, they should put the property in just one person’s name.
For more details on which choice might be best for your situation, check out the full post for more information.
Keep Separate Accounts Open
Even if you choose to open joint accounts, it’s wise to keep your individual accounts active, as Nolo suggests:
Having accounts with a longer history of positive activity boosts your credit score. Plus, keeping unused credit lines open is beneficial. It's also a good idea to maintain at least one individual account in case of a separation or divorce.
Consider Legal Agreements
While no one enjoys thinking about the P-word, it’s important to address it. Prenuptial agreements can offer protection from your spouse’s debt if divorce happens. Legal Zoom explains that a prenup allows you to define how income and debts will be managed in your marriage, regardless of state laws. If you live in a community property state, it can help clarify who’s responsible for what debt.
Forbes explains that a pre- or post-nup can be used to clearly determine who owns specific debts:
A well-thought-out and carefully crafted prenuptial agreement can spare you from significant hassle and complications if your marriage ends in divorce. Even if you remain happily married, it provides a solid foundation for clear financial discussions that should be a part of every partnership. A postnuptial agreement can also outline how debts will be managed in the event of a separation.
Naturally, it's essential to seek the advice of an attorney when drafting your agreement. An attorney can provide insight into your specific liabilities, depending on your circumstances and the laws of your state.
You should also ensure that you and your spouse are on the same page financially and create a strategy to help your partner improve their financial situation. In the meantime, it’s crucial to safeguard your own good credit. By maintaining open communication, understanding your options, and being aware of your risks and responsibilities, you’ll be well-prepared for whatever comes your way.
