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Read Credit Advice Articles and Personal Finance Information to Improve Knowledge and Credit Use
|Who Pays Joint Spouse Debt
Who Pays Joint Spouse Debt After Divorce or During Marriage Separation
Debt Collections, Garnishments and Court
When your spouse fails to pay on credit card debts and debt collectors are constantly calling, your assets may be at risk too. The Tower Group reported that chargeoff rates for some 100 credit card companies reached a historic high in March. Even if you think this does not affect you, reconsider that it may if your spouse defaults on credit card payments.
If you are not a joint cardholder on your spouse's account, the responsibility for the debt may not necessarily be yours. If the debt goes into collections there is a chance you may have to pay. When you ignor phone calls and letters from creditors and they are unsuccessful in collecting, there could be a court date and a judgment for payment. It is best never to take paying back debts lightly.
Consumers often at times over look problems that a spouse may have debt problems. If a spouse is constantly charging, and has deductions from paychecks to reimburse credit card companies, this could be considered a warning sign. If a spouse gets a paycheck and still insists on charging instead of using money from the paycheck for expenses this can be another sign there may be problems.
Newlyweds often find that a spouse uses a credit card excessively and carries a high credit card balance. Often when this happens they are only paying the minimum due each month and the debt never gets paid off. New couples many times find out their spouse is not paying credit card debts and notice they are dodging phone calls for debt payments. Eventually there could even be a summons to go to court. Cases like this can be very embrassing if an employer finds out. When wages are garnished it could be difficult to pay for living epenses. This is a hard way to learn a lesson about paying debts.
Below are some problems that can arise when debts are not paid:
- Creditors can get a judgment against the person who is on the credit card.
- In collections, it may be possible to go after the assets of the spouse. John H. Graves, an attorney in Moore, Oklahoma gives this example: If a Jet Ski is sold for $3,000 and the money is deposited into a spouse's account, the creditor may be able to go after it, even in an "equitable division" state, where creditors generally cannot touch a spouse's separate assets.
- Most states are equitable division states and about nine states operate under a different legal theory on spousal assets and debts as community property. Community property states like AZ, CA, WA, LA, NV, NM, TX, to name a few, say a spouse's assets are fair game if the assets were acquired during the marriage. In both types of states, property and debt brought into the marriage remain separate until comingled, such as if one spouse used money saved before the marriage to buy a kitchen table.
- Creditors can garnish or take money from bank accounts. According to Lesley Hoenig, and attorney in Mount Pleasant, Michigan,"If it's a jointly owned account in an equitable division state, you may be able to keep the funds of the nonliable spouse. She further adds that the amount of the garnishment can be objected to by proving how much money was earned by the other spouse, but sometimes debtors are not informed in time to protect those funds. Social Security income, is protected from garnishment. She recommends keeping a separate account just for Social Security payments that is not intermixed with other funds or income.
- Material items that are jointly owned can be seized by creditors in most situations and states as property that is joint could be fair game.
- In some states things like vehicles can't be taken during collections, retirement plans may be protected, cash values and proceeds, or a primary residence if owned due - to homestead protections.
- In some states couples can co-own property as a single legal entity with protection from creditors. This is called a tenancy by the entirety. The wife nor the husband doesn't own it. If one or the other has a judgment against them, the creditor cannot get the asset. There would need to be a judgment against both spouses for a creditor to get the property. Many states have this type of ownership for primary residences. There can be other types of legal protection for real estate, protection for cash, partnerships, certificates of deposit and other assets.If a couple lives in a state where a tenancy-by-the-entirety ownership is not available, they may be able to put their bank accounts and real estate in a tenancy-by-the-entirety trust in another state.
- Don't think you can transfer assets to a family member before collections start as that could be considered fraudulent conveyance. There could be a "look-back period" in which activity is considered fraudulent and it varies by state.
Debts must be paid even if it takes a court order. Consumers who are in debt have several choices to get out of debt and hopefully avoid debt collectors, garnishments, or court by seeking out options before getting further and further into debt.
More information about joint spouse debts and how divorce affects credit:
- Joint auto loan - How spouse credit affects joint auto loans, and the impact of divorce.
- Joint credit card - How spouse credit affects joint credit cards, and the impact of divorce.
- Joint credit card debt - Which spouse pays the bills (loans and credit cards) after divorce.
- Credit Report Joint Debt - when couples marry, assets; as well as debts, become "joint". Unfortunately, divorce does not nullify financial obligations, even if a judge specifies in a divorce decree which spouse is responsible for re-paying which bills.
- Joint Credit Score - Married couples have a joint credit score, and the score of one spouse can affect the other.
- Spouse Died with Credit Bills - What you should do if your spouse died and left behind unpaid credit balances and other bills in the spouse's name