Finer Finance Fridays #9
So, you have made solid financial decisions and you have your financial act together, but your soon-to-be-lifelong partner doesn't. You love your partner, but you've worked hard to get your finances in order, and you don't want to be responsible for their past mistakes. Here's how you can protect yourself from marrying into debt.
Share Your Financial Pasts
Before you decide to spend the rest of your life with someone, you should know where they stand financially. It might not seem like an issue now, but money is a top cause of marital fights. The more you prepare now, the smoother things will be down the road.
Experts recommend reviewing your credit reports and histories together. Discover how your financial thoughts and behaviors differ. Try not to be judgmental, but if there are delinquencies, find out what led to them. Know your spouse's attitude about money. This way, when financial topics arise in the future, there won't be any ugly surprises.
You should certainly work with your spouse to overcome past financial mistakes. Marriage is about becoming a team, after all. But protecting your credit is good for both of you. If you run into financial trouble, you'll have at least one healthy credit history to fall back on.
Know When You're Liable for Your Spouse's Debt
Many people assume that, once you get married, you automatically take on your spouse's past debt and bad credit. According to Sally Herigstad of CreditCards.com, that's not entirely true. Your credit histories remain separate: "Your partner's debts do not automatically become yours. Nor do credit card companies care whether you take your spouse's name when you get married. A month after you get married, you could apply for a credit card under your new name and nothing should be any different from what it would be today."
There are some cases in which you might be responsible for debt your spouse incurs during the marriage. It's important to know your state's position on the matter. Each state weighs different factors and may have additional rules regarding when an obligation is considered a community debt. Usually, if the debt was incurred for something that benefited your marriage, it will likely be deemed a community debt. But if it was a purchase that only benefited your spouse, there is a greater likelihood that it will not be considered a community debt."
This isn't usually true for common law states, in which you're generally only responsible for debt that's in your name. Most states are common law, but the following states are community property states:
Of course, prenuptial agreements can help with this. With the help of a lawyer, you can specify which types of debts belong to whom and navigate through the confusion. Check out this post for more detail on common law vs. community states. Am I Liable for My Spouse's Credit Card Debt?
Consider Legal Agreements
No one likes the P-word, (prenuptial, that is) but we've got to talk about it. There are ways prenuptial agreements can help protect you against your spouse's incurred debt in case of divorce. Legal Zoom explains that, regardless of your state laws, a prenup lets you decide how income and debts in the marriage are handled. If you live in a community state, it might help to clearly set your debt boundaries. Forbes explains that you can use a pre- or post-nup to specify who owns particular debt: "A well-considered, thorough, properly-executed prenuptial agreement can save you a world of time and trouble if your marriage ends in divorce; and, if you stay happily married, it provides a foundation for clear communication about finances that I believe should underlay every marriage….A post-nup can specify how those debts would be paid in the event of a break-up."
If your fiance's money problems are especially egregious, MSN Money suggests waiting to marry until they get their finances in order. One MSN reader explained that she was set to marry someone in deep debt. Writing for the site, Herigstad advised: "I hope you wait at least a year, if not two, before you get married. Give your partner a chance to clean up their credit score, any back taxes, and other debts on their own. If your partner is determined to file for bankruptcy, they should get that out of the way before you get married. (One spouse can file for bankruptcy alone, but it can get messy.)"
If you don't want to go that route, consider at least waiting to open joint accounts once you're married. Let your spouse get his or her affairs in order before you apply for joint credit or open joint accounts. Herigstad suggests waiting until he or she has had a clean record for several years.
Know What You Are Getting Into
The Bottom line here, is you should also get on the same page financially and come up with a plan to help your spouse get his or her finances together. But in the meantime, it'll be best for your marriage to protect your good credit. By communicating, understanding your options and knowing your risks and liabilities, you'll be on the right track.
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