Money is often one of the most contentious issues in a relationship, and financial issues are often one of the leading reasons for divorce.
When you’re thinking about marriage, it’s important to think about how you both approach money, because disagreements around finances can strain a relationship to the breaking point.
Another thing you may want to consider is what the laws are when it comes to marriage and debts. You may be surprised to learn that in some states, any debt your spouse incurs during your marriage is also considered your debt.
But what if your partner is collecting debt behind your back? Or after a breakup?
Imagine Lisa, for example, who separated from her husband Brad four months ago. They rented their house together, and mostly kept their finances separate, except for a joint credit card that they used for household purchases. Lisa’s savings and other accounts are separate, and she has saved about $20,000.
When Brad moved out of their shared home, Lisa called the credit card company and canceled the shared credit card. But when she got her credit report recently, she found three credit cards in her name that she hadn’t applied for. The cards are overloaded with a total debt of $45,000. Lisa called the credit card companies and discovered that one of the bills had been sent to collections.
This scenario is most people’s worst nightmare, which is why it is important to understand the laws related to joint finances and property before getting married.
In common law states, which cover 41 states, premarital property is considered separate, and any property acquired during the marriage is not automatically considered the property of either party (1).
In states with community property laws, property and debts acquired during marriage are owned equally, however, property and debt acquired before the marriage are also not considered property of both parties (2).
So, if your spouse raises a debt under the Community Property Act, you are responsible for it. At common law, you are responsible for your spouse’s debt if you co-signed the debt, it is a joint account or if the debt is jointly owned or necessary for your family (3).
According to Justia, a loan taken after separation but before the divorce is final can be treated “as a separate loan to his wife”. However, it depends on the laws of the state and when the court officially recognizes the date of separation (4).
Justia also notes that although a divorce decree will specify who is responsible for each debt, the decree “does not change your original agreement with the creditor.” So, if your previous loan defaults, the lender can pursue you for payment (4).
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If you’re in a situation like Lisa’s, completely unaware of the debt collection in your name, the first step you can take is to freeze your credit with all three credit bureaus. You can also place a fraud alert on your credit reports – both freezes and fraud alerts are free (5).
Opening credit accounts in someone else’s name without their knowledge is fraud, and when a romantic partner does this, it is referred to as forced debt (6). Obviously, this is very different from joint credit card debt that both parties were aware of.
If you are in this scenario, you may want to consider reporting identity theft to the Federal Trade Commission and local police. However, this can be a difficult step when identity theft is committed by someone you know. If your romantic partner is abusive, it can be dangerous to take these steps.
The Center for Survivor Justice and Administration (CSJA) states that “If a survivor lives with an abusive partner or believes they may be at risk of retaliation, he or she should take extra precautions” (7).
The CSJA says that while filing a police report is not required, it is recommended. Sending these documents should encourage credit bureaus to open disputes, remove fraudulent accounts and release victims from liability for fraudulent loans (7).
If the creditor does not remove the accounts, you can write a credit report dispute letter to the consumer reporting agency and include a copy of the police report (7).
Recovering from such a scenario also means taking precautions such as changing passwords for your email and financial accounts, changing ATM PINs, email addresses associated with existing bank accounts or possibly changing financial institutions altogether.
Managing all of this at the end of a marriage is no small task, but it is important if you want a fresh start, free from debts that are not your responsibility.
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FindLaw (1); Stemmel’s Law (2); Nolo (3); Just (4); FTC (5); CSAJ (6), (7)
This article provides information only and should not be used as advice. It is provided without warranty of any kind.
