Depending on which state you live in, you might just be responsible for any and all spending incurred by your spouse, even if you didn’t sign a thing (other than a marriage license). Quite scary huh? I would agree. The fact is, you better protect yourself and take precautionary measures to best ensure you don’t get burnt. This article will take a brief look at the 9 states which are called “Community Property States” and the remaining states also referred to as “Equitable Distribution States.” Moreover, I will give you my opinion on how you can try and protect yourself from falling victim to a major surprise down the road (this article is not giving you any legal advice – consult a local attorney for specific advice for you and your situation).
Most couples go into marriage thinking they will always be together, the stats prove otherwise. Look at these staggering stats below:
The divorce rate in America for first marriage, vs second or third marriage 50% percent of first marriages, 67% of second and 74% of third marriages end in divorce, according to Jennifer Baker of the Forest Institute of Professional Psychology in Springfield, Missouri.
According to enrichment journal on the divorce rate in America:
The divorce rate in America for first marriage is 41%
The divorce rate in America for second marriage is 60%
The divorce rate in America for third marriage is 73%
Now that we’ve established that things often go wrong, it’s important to note that when they do, and a divorce is imminent, that’s when most people find out that their spouse has racked up a bunch of personal debt without your knowledge.
In general, states have adopted one of two ways of dealing with your divorce, so let’s distinguish which states are what. Below that, I will speak to the differences in how courts deal with your case depending on the law.
The nine states that are referred to as “Community Property States” are as follows.
– Nevada – New Mexico
– Puerto Rico
“Equitable Distribution States”
– District of Columbia
– Missouri – Montana
– New Hampshire
– New Jersey
– New York
– North Carolina
– North Dakota
– Rhode Island
– South Carolina
– South Dakota
– West Virginia
In a community property states, debt acquired during the marriage (as opposed to debt acquired prior to the marriage) is owned jointly by both spouses and is divided upon divorce, annulment or death. Joint ownership is automatically presumed by law, unless there is specific evidence that would point to a contrary conclusion for a particular debt. If you live in a community property state (listed below), both spouses are held accountable for any and all debts acquired during the marriage, even if the account was is listed exclusively in one spouse’s name. (source)
Equitable distribution. In all other states, assets and earnings accumulated during marriage are divided equitably (fairly), but not necessarily equally. In some of those states, the judge may order one party to use separate property to make the settlement fair to both spouses. (source)
According to Wikipedia, in a community property jurisdiction, most property acquired during the marriage (except for gifts or inheritances) is owned jointly by both spouses and is divided upon divorce, annulment or death. Joint ownership is automatically presumed by law in the absence of specific evidence that would point to a contrary conclusion for a particular piece of property. The community property system is usually justified by the idea that such joint ownership recognizes the theoretically equal contributions of both spouses to the creation and operation of the family unit.
Division of community property may take place by item, by splitting all items or by value. In some jurisdictions, such as California, a 50/50 division of community property is strictly mandated by statute, meaning that the focus then shifts to whether particular items are to be classified as community or separate property. In other jurisdictions, such as Texas, a divorce court may decree an “equitable distribution” of community property, which may result in an unequal division of such. In non-community property states property may be divided by equitable distribution. Generally speaking, the property that each partner brings into the marriage or receives by gift, bequest or devise during marriage is called separate property (i.e., not community property). See division of property. Division of community debts may not be the same as division of community property. For example, in California, community property is required to be divided “equally” while community debt is required to be divided “equitably”.
Property that is owned by one spouse before the marriage is the separate property of that spouse, unless the property is “transmuted” into community property. The rules for this vary from jurisdiction to jurisdiction.
Whereas, with equitable distribution states, property and debt can be divided equitably, not necessarily equally. Creditors have very different rights in collecting their debts, depending on state law.
In summarizing the two different types of state law it’s critical to note that there are still significant differences in the way say Texas and California laws are written. No two states laws are identical, for simplicity we’ve lumped them together in two separate categories. Moreover, in equitable distribution states you may still be required to pay back personal debt incurred by your spouse. Generally speaking though, spouses can file bankruptcy individually and more easily in Equitable distribution states and it’s much tougher for creditors to come after you for debt your spouse has incurred.
What can you do to protect yourself? Don’t get married. Just kidding, but it’s not bad advice if you want to stay untangled financially, then again common law may treat you as married for legal purposes. For those of you who don’t have that option? Monitor your spouses credit file with their permission! You cannot legally acquire a spouses credit report without their permission. Before you get married, agree to monitor each others report on a semi annual basis. Be open about your finances, and pay attention to their spending. Chances are you don’t need to see a credit report to know they’re spending frivolously!
My point in writing this article was to raise awareness that in several states you can be held responsible by creditors for your spouses personal debt that they may have accrued with or without your knowledge. I’m also raising awareness that you must strive to be open with your spouse about everything financially. It would be a good idea to be open with each other and to keep some spending money on the side, in the form of cash, so that you can both spend freely and within budget. But just because you live in an equitable distribution state, doesn’t mean you won’t or can’t be held partially responsible for personal debt your spouse incurs. Remember, equitable doesn’t necessarily mean equal.