Jane from California recently found herself in a situation that many married couples might never face: being responsible for her husband’s credit card debt.
On a recent episode of Suze Orman’s Women & Money podcast, Jane asked the famed personal finance expert if she would be held responsible for her husband’s credit card debt if something were to happen to him, despite not being linked to his accounts.
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Orman’s response ended the confusion: “You will most likely be held accountable,” she said. Jane lives in California, one of many “community property states” where a spouse’s debts can legally become shared debts. This may sound like a raw deal, but it is the law in nine states, including Arizona, Idaho and Texas.
According to experts, community property states treat assets and debts incurred during the marriage as jointly owned by both partners, regardless of whose name is on the account. In other words, Jane’s husband’s credit card debt could become hers because they are married, even if she hasn’t earned a single dollar on that card.
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According to Investopedia, in community property states, debts incurred during the marriage are split 50/50 in the event of a divorce. This rule applies not only to splitting assets, but also to debts, which are divided in the same way.
If Jane’s husband were to take out loans or use credit cards while they were married, that financial responsibility could fall on her as well. But if those debts existed before they were married or after a legal separation, Jane would not be liable – unless she specifically agreed to assume those debts.
However, most US states do not follow this community ownership model. In states like New York or Illinois, couples follow an “equitable division.” There, debts are distributed more flexibly, often based on who incurred the debt and other circumstances.
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In Jane’s case, however, California’s community property laws mean that her financial obligations could also include her husband’s debts, whether she signed on the dotted line or not.
Although this sounds grim, couples can protect themselves by signing a prenuptial agreement. First, this agreement allows couples to opt out of community rules.
These agreements may contain specific exceptions, allowing each person to retain individual responsibility for the debts and assets he or she brings into the marriage. In other words, Jane could have been protected if she and her husband had signed one of these legal agreements beforehand.
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However, even without a prenuptial agreement, there are also couples who find themselves in a difficult financial situation due to the debts of one of the spouses, not without options. According to financial planners, the first step is to create a budget to take stock of income, outstanding debts and monthly expenses.
By tracking where every penny goes, one can determine the best strategy to reduce debt, such as consolidating it or cutting back on non-essential expenses.
Construction savings are also critical. As Orman noted, “One year is my best advice for being prepared for major financial setbacks. But if you don’t have emergency savings, I think making three months of living expenses your savings goal is beyond fantastic.” A solid financial cushion helps soften the blow of unexpected expenses, whether it’s a spouse’s debt or another crisis.
In cases where debts are spiraling out of control, experts recommend considering life insurance. Having a policy in place can ensure that if one spouse dies, the surviving spouse will not be left in debt.
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This California Article Asks Suze Orman About Her Husband’s Credit Card Debt – Here’s the Surprising Answer About Who’s Responsible originally appeared on Benzinga.com
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