Oct 26, 2018

Debt And Marriage Both Needs Careful Handling According To The Governing Rules

Marriage is a special and ‘divine’ relationship that does not limit to sharing love and happiness but everything in between these and you two. Sharing dreams, time and even debts fall into this periphery.

Marriage also has some legality in which you are bound to share the debts of your partner irrespective of the fact that he or she is living or not living with you. It also does not matter whether you receive any benefits from your spouse or not. In short, debt is something that you cannot avoid to incur and pay.
Considering the legality aspect, it is important that you know when you legally owe your spouse’s debt and need to pay it up, as where there is a rule there is bound to be a few exceptions as well.

Dependence of the law

Regarding your spouse’s debts, you will first need to know that whether you are liable for the debts incurred by your spouse largely depends on where you live. The rules and regulations will differ when you live in a community property from those rules and regulations that are applicable when you live in an equitable distribution state.

  • There are a few handfuls of states that follow "community property" rules. According to this rule, almost all debts incurred by any of the spouses during the marriage are legally a liability of both spouses.
  • On the other hand, in those states where "common law" property rules are followed, the liability of all debts usually falls on the person alone who incurs those debts.

However, there is an exception to the “common law’ property rule. If the debt is incurred due to any necessity for the family, then the liability of these debts is shared. These are however general rules. Therefore, a few states may have subtle variations in their practice for treating joint and separate debts.

Applicability of the law

Both common law property rules, as well as community property rules, are applicable for different sex as well as same-sex marriages in the respective states that follow it.

It also applies to same-sex domestic partnerships as well as civil unions in the states where such relationships are considered to be equivalent of marriage. On the other hand, in those states where such a relationship does not confer all the rights of marriage these rules are not applicable.

Features of community property law

There are specific and distinctive features of the community property law in the states that follow this. These involve debts and liability, income and property and even bankruptcy.

  • Debts – According to the law, most debts incurred by any of the spouses during their marriage are owed by the couple or "community." It is applicable even if only one spouse has taken on the debt and signed the paperwork for it. The key factor here is the marriage. Therefore, if you incur a student loan while you were single and then got married, the debt will not be considered as a joint debt automatically except when your spouse agrees to sign on an account after marriage to be a joint account holder. In this case, both of you have to consider whether you will go for debt consolidation or settlement if you find it difficult to pay your debts after reading the debt settlement reviews.  The liability will remain for both in a joint account, joint assets and debts for family necessities even after legal separation or divorce.
  • Income and property – The income of the couple during the marriage is shared under this rule as well. Any property bought with that income will be considered as community property and will be owned equally by you two. Gifts and inheritances received by anyone spouse and any property separately owned before marriage or after divorce and permanent separation and kept separate will be considered as a property of that single spouse only.
  • Bankruptcy – When only one spouse files for Chapter 7 bankruptcy under this rule, all eligible community debts of both spouses will be wiped out.

However, the liability of a spouse under community property law can be removed when there is a signed agreement with each other that their debts and income are to be treated separately. This agreement can be prenuptial or postnuptial and can be signed with a particular store, supplier, or lender provided that the other party agrees to it.

Features of common law

In a "common law" property state, it may look simple as a debt incurred by an income of one spouse is of that person alone. However, there are a few things to know.

  • Debts – If any debt benefits the marriage then it will be owed by both spouses. Such debts are food, clothing, shelter, child care, necessary household items or debt taken jointly. Moreover, if names of both spouses are on an account or title of a property, or if the creditor considers credit information of both spouses for making the sale or loan it will be owed by both spouses and will hold true even after permanent separation but prior to the divorce.
  •  Income and property – when a property or account has a joint name and is not kept separate, or if both spouses hold a joint bank account, it will be considered as joint property. Such property may include household goods, equity in a jointly owned home, vehicles, retirement plans, and mutual funds or stocks.
  • Bankruptcy – According to common law property rule, when one spouse only files for Chapter 7 bankruptcy joint or separate debts of only that spouse will be discharged or written off. However, the separate debts of the other spouse will not be discharged.

In common law property rule, you can only escape liability from paying a debt off is by keeping your property, income gifts and inheritances separate. Creditors will go after the joint property if you cannot repay the debt but usually will take only half of the money in the joint account of the other spouse in most of the cases and states.

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