Responsibility for Spouse's Debt

Am I responsible for my spouse's unpaid debts?

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Bill's Answer: Answered by Mark Cappel

Generally speaking, if both spouses sign a debt agreement both are jointly liable to the creditor. However, if only one spouse signed the agreement, then depending on which state the agreement was signed or where the spouses now live, the non-signing spouse may have liability.

Spousal liability in community property states

Let us tackle the difficult states first -- the community property states. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

If the spouses now live in a community property state, or lived in one at the time the consumer debt account (such as a credit card account) was opened, the non-signing spouse may have incurred liability without signing a credit contract as co-debtor. If the debt incurred during your marriage was used for the benefit of both members of the marriage, liability may accrue to the non-signing spouse in community property states.

Regarding a non-signing spouse's liability IF the parties are living in a community property state AND the debt was incurred during their marriage for the benefit of both spouses, AND a spouse is sued and a judgment is rendered for a specific amount owed, the judgment can be collected by wage garnishment against any defendant included in the judgment order singularly or simultaneously. The garnishment amount is normally 25% of net income (that is, after withholding) but this varies from state to state. The creditor does not have any duty to "even out" the judgment liability between the spouses. A creditor has the legal right to collect 100% from either spouse, whichever is more convenient for them.

As a practical matter, even in community property states, many creditors do not go to the trouble of suing both spouses, as doing so tends to complicate the legal process involved in obtaining a judgment. However, this does not mean that a particularly aggressive creditor will not pursue all of its available rights to collect a debt.

One important disclaimer: Community property laws are unique to each state -- no two states share the same laws. The discussion above regarding spousal liability is meant to provide general information about community property as a theory. Your state's laws may vary from the general theory. Therefore, it is important to consult with an attorney in your state who can review the details of your situation and give you accurate and precise advice about your rights and liabilities under your state's laws.

Spousal liability in non-community property states

Generally speaking, if the spouses never resided in a community property state, and only one spouse signed the loan contract (such as a credit card agreement), then the signatory-spouse is liable for the debt. Conversely, the non-signatory spouse does not share in his or her spouse's liabilities in non-community property states.

Bankruptcy

Now let us turn to bankruptcy. Let us assume one spouse filed for protection under chapter 7 or 13 of the federal bankruptcy code. That filing may not have any effect, positive or negative, on the non-filing spouse. In a non-community property state, the filing of one spouse does not give the other spouse protection of the "automatic stay" (blocking creditors from collection) or the bankruptcy discharge.

Similarly, one spouse filing bankruptcy will not have an effect on the other spouse's credit report, if there are no joint debts. If there are joint debts, you can expect the bankruptcy to be noted in some way on the credit record of the non-filing spouse.

If both spouses are jointly liable to a creditor, the bankruptcy of one does not relieve the other of paying the debt. Upon a bankruptcy, the creditor may look to the other spouse for payment, unless the bankruptcy case is under Chapter 13. If the debt is a consumer debt to be paid 100 percent through the Chapter 13 plan, the co-debtor is protected by the co-debtor stay.

There may be good news for spouses who file for bankruptcy in a community property state. When one spouse files bankruptcy in a community property state, the marital community enjoys the protection of the filing spouse's bankruptcy discharge.

Consult with an attorney to discuss the possible ramifications for both spouses. Bankruptcy laws and courts are federal, but community property and family law vary from state to state. It is important to discuss your situation with an attorney familiar with your state's marital property laws.

Bankruptcy and judgments

Some judgments cannot be discharged in bankruptcy, including child support, repayment orders dealing with cases of fraud, student loans and some taxes. However, a credit card judgment can be discharged in bankruptcy.

Review the Bills.com bankruptcy help page to learn more about this procedure, what it can do for you, and more on which debts can't be discharged in a bankruptcy.

Recommendation

If you live in a community property state you have a theoretical liability for your spouse's debt. If the judgment-credit is particularly aggressive this will have a negative impact on you. If you live in a common-law state you should have no liability, if the facts you presented in your message are accurate. I see no reason for you to withdraw funds from your account if you are not a judgment-debtor.

Beware joint accounts. A judgment-creditor may have the right under your state's laws to seize the funds in any joint accounts owned by the judgment-debtor. For this reason, I do not recommend joint accounts. If you have a joint account with a judgment-creditor, then working in concert with the judgment-creditor, close the account. Open separate accounts with separate tax ID/Social Security numbers. If you need to transfer funds between the accounts, your bank or credit union will almost certainly allow you to do so electronically.

I hope this information helps you Find. Learn & Save.

Best,

Bill

www.bills.com/

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Comments (24)


Thos W.
Virginia Beach, VA  |  February 26, 2014
I discovered my spouse ran up a $32K credit card debt on her personal, non-joint credit card account. We do not hold any joint credit card or bank accounts. We do hold our home as joint property. To what extent am I liable for my spouse's credit card debt?
Bills.com
February 27, 2014
Your state of residence and the source of debt are keys to answering this question.

You indicated you reside in Virginia. Virginia is a common law state when it comes to family law. Under Virginia law, spouses have liability for their own debt and joint debt, but not separate debt.

There is an exception to that rule, however, in Virginia and other states. Virginia's "doctrine of necessaries" rule makes spouses liable for each other's debts incurred for necessary living expenses such as shelter, food and medical care. If the $32,000 credit card debt's source was medical bills, paying the mortgage, or for the household's groceries, then you will have liability for the debt.

You mentioned your home has a concurrent title. Let's say for the sake of argument your spouse defaults on the credit card payments, and the bank or its collection agent files a lawsuit, which your spouse loses. With a judgment in hand, the judgment-creditor has the option to place a lien on the judgment-debtor's property, including jointly titled property. See the Bills.com article Virginia Collection Laws to learn more about your rights and liabilities as a Virginia resident.
Rob H.
Independence, KY  |  February 21, 2014
My wife and I live in KY. I bought a house while we were married but kept the note, mortgage, and warranty deed in my name only. She was later sued by a third party agency who was rendered a judgment lien on real estate. I came to find out they placed a lien on my house. How are they able to do this when nothing is in her name? Thank you.
Bills.com
February 21, 2014
You mentioned Kentucky. Kentucky is a "marital property" state, which adopted some of the characteristics of community property law. I hasten to add Kentucky is not a community property state. I cannot find a statute or case law allowing a judgment-creditor to attach a lien to marital property not titled in the judgment-debtor's name. To the contrary, the case law I find suggests Kentucky follows traditional common law when it comes one spouse's liability for the other spouse's debt. In other words, I don't think the court should have allowed the judgment-creditor to place a lien on property titled in your name alone for a judgment filed against your spouse.

Consult with a Kentucky lawyer who has civil litigation experience. You may be able to file a motion to remove the lien on your property.
Tiffant P.
Fairmont City, IL  |  February 12, 2014
My husband and I own our primary home, which is paid off, and is worth about $80,000. My husband and my brother-in-aw have a joint mortgage on a home, horse stables and some property that was bought in 2005. After about 2 years; my husband wanted out from under the note so he sold out to my brother-in-law. The bank told my brother-in-law that they would refinance my husband’s name off the mortgage, after 1 year of on time note payments. But after a year, the bank would not refinance my brother-in-law without another co-signer, so needless to say, my husband’s name stayed on the note. Well about 5 months ago my brother-in-law quit paying the note, due to the bank holding insurance money for a claim to damages to property in a hail storm. My brother-in-law eventually paid for the repairs out of his own pocket, and they wouldn't reimburse him, and still hold $6000 of insurance monies. My brother-in-law has also not paid the real estate taxes for the either. The mortgage in in default of about $20000, with $230,000 still being owed on the loan. My brother put his primary home in his 17yr old son’s name at about the time he quit paying. He also has another mortgage for a home that he rents to my parents. My questions are Can I take my husband’s name off our primary home and the banks not come after it for deficiency? Or are they still able to come after my home? Will I personally be liable for some of the deficiency? Will the court split the deficiency evenly?
Bills.com
February 14, 2014
You have a lot of moving parts in your situation. I would do you a disservice by venturing a guess as to what a court would decide regarding your spouse's liability for the deficiency balance, and what property would be vulnerable to a lien. Consult with a lawyer in your state who has civil litigation experience. He or she will analyze your situation, apply your state's statutes and case law, and give you a better guess than what I can offer.
B M.
Porum, OK  |  April 12, 2012
I live in Oklahoma, I was put on the note of a car my dad purchased in 2008. After the car was unfixable by any type of mechanic the company was told to pick it up. I worked payment arrangements with them since my dad has limited income. Disabled veteran, after only owing 3,000 it jumped to 7,000 after paying the same amount for 1 1/2 years! They were still charging interest and filed a judgement with no notice to us till they atempted to freeze my dads bank account but it's being protected by the bank. I'm a stay at home mom and I married my husband after the fact and we have a joint account. Can they freeze it?
Bills.com
April 12, 2012
You need to take two steps:

First, consult with an Oklahoma lawyer who has civil litigation or consumer law experience to learn if the plaintiff followed all of Oklahoma's rules when filing the lawsuit. He may be able to vacate the judgment. Also, the lawyer will be able to determine if the interest and charges for the deficiency balance are legal amounts in your state.

Second, regarding your joint bank account, assume for the time being you were also a defendant in the mystery lawsuit and the creditor has a judgment against you. Your spouse should open a separate account at your bank or credit union immediately. Your name or Social Security number should have no connection to the new account. Have his wages and other income deposited to the new account. When you need funds, use your bank or credit-union's online funds transfer tool to move money back and forth between the two accounts. If the account that includes your name is ever levied, your spouse may continue to pay your household's bills, and so forth.
John S.
T/o Pittsford, NY  |  April 10, 2012
Hi, Last Fall, my wife wanted to buy a car. At the time, her car was already paid off. She said that she needed a new one (Honda Pilot for $30,000) because it would hold 7 people, instead of the Lexus SUV that she had which could only hold 5 people. I told her that I would not agree to this purchase, and I that I felt that it was ill-advised because the money to pay for it would have to be removed from my children's college funds. A few days later, she came home with a Honda Pilot that she bought for $30,000. I refused to make payments or pay for maintenance. She now filed for divorce and claims that the court will now make me pay for the whole car (all $30,000) plus all maintenance because she was a stay-at-home mom. Does any of this make sense? (I live in New York). John
Bills.com
April 10, 2012
How assets are divided in a divorce varies from state to state, and more significantly, from marriage to marriage. Consult with a lawyer who has family law experience immediately to learn more about your rights, and a preliminary overview of how your assets will be divided.
Fran S.
Plantation, FL  |  March 03, 2012
Husband died and now I received a letter that he was given money from a girlfriend. I did not know about this. The girlfriend called me and wants me to make payment arrangements with her. I lived in New Jersey when he did this. He died in florida. I dont think I am responsible.
Bills.com
March 03, 2012
I can't give you legal advice, but I don't think you are responsible for the debt. You should speak with an attorney, preferably the one that handled the probate on your husband's will.
Jason C.
Lansing, MI  |  February 22, 2012
We own a house in Michigan. The mortgage is in my wife's name only. We will be moving soon due to my job and don't have the money to make up for the lost value in our house, which would be needed to sell it. We care considering foreclosure since the house is only in my wife's name. Is there any possibility that the bank could come after me in anyway if we foreclose on the home?
Bills.com
February 22, 2012
First, you wrote, "The mortgage is in my wife's name only" and later, "...the house is only in my wife's name." Is the house titled in your spouse's name alone? If it is titled in both of your names, ask a lawyer to create a quitclaim deed to put the house's title in your spouse's name only. Second, are you moving out of Michigan? If so, to which state?

If you remain in Michigan or a common law state, I do not see a means for the mortgage lender to pursue you for the deficiency balance. If you move to a community property state, there is a chance — a remote one — the lender could pursue both of you for a deficiency balance.
KEVIN D M.
Lohman, MO  |  September 21, 2011
We live in Hawaii. My wife wants to buy a home for her daughter in Louisiana as the sole purchaser. I am being asked for my credit history - can this be avoided and will I be liable for the LA mortgage even though the property is in my wife's name only? Thank you
Bills.com
September 21, 2011
Kevin, I can't give you legal advice or tell you what your liability will be. You need to speak with an attorney to get legal advice. I will share a few thoughts with you.

A lender can choose to ask for your financial information before deciding to lend to your wife. After all, debts that you have may affect her ability to maintain all her obligations. However, not all lenders are going to demand the same information. I suggest that your wife speaks to other lenders, to see if any will process her loan as a sole buyer without reviewing your credit and financial history.

Hawaii is not a community property state, but Louisiana is. It is my feeling that you would not be liable for a debt not incurred in your name, but you should speak with an attorney to see if Louisiana's community property laws could affect you, even as a resident of a non-community property law state.
Monica R.
Aylett, VA  |  August 22, 2011
I live in Virginia, a non-community property state. My husband hired a contractor to paint our home. The contractor fill and was seriously injured. Our home belonged to my husband prior to our marriage (15 years ago). My name has never been added to the title of the house. I am wondering if the contractor sues us, and I am sure he will. Would the case be against my husband only, as he is the sole owner of the house and the person who hired the contractor, or will I be a defendant in the case?
Bills.com
August 23, 2011
If you were not a party to the contract and if you are not on title to the home, then you should not have direct liability.

However, you should seek counsel from a local attorney, since your husband may have potential liability and that could extend to jointly held assets. You should also file a claim IMMEDIATELY upon receipt of the suit with your home insurance and your umbrella policy insurance agency, since you are very likely covered.
Kimberly P.
Pineville, LA  |  July 06, 2011
My husband has racked up almost 70,000 in debt over the last 6 months. I was diagnosed with cancer in January and had no idea he was charging up credit cards, paying over 20,000 for 'stock market tips and stock trading online courses'. What can I do to protect myself, our home and my two young sons from this debt. Are you protected if you take out the ad in the paper stating you are not responsible for debt incurred by anyone else. Please help. I have been fully employed for 24 years but I am out on temporary retirement while I deal with my illness
Bills.com
July 06, 2011
You indicated you reside in Louisiana. As you are aware, Louisiana is a unique state, and I do not mean just its delightful cuisine. All other US jurisdictions base their state laws on English common law, that each have adapted over the last 250 years. Louisiana, however, is based on Napoleonic code, which is different in some regards. I have not studied Louisiana law, and therefore cannot comment on its unique brand of community property law. Accordingly, consult with a Louisiana lawyer who has family law experience to learn more about your rights and liabilities.
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