Personal Finance

Money Matters: Advice for a wife whose husband has secretly racked up debt

Q: I have a question about marital debt. My husband has taken on credit card and personal loan debt without my knowledge.

We have kept separate checking accounts ever since we have been married. However, we have always filed taxes “married filing jointly.” The debts are substantial. If he is unable to pay these debts, are the creditors allowed to come after me? How would separation or divorce affect this debt?

A: To help answer your question I contacted Imogen J. Baxter, a family law attorney practicing at Raleigh Family Law, PLLC, a boutique law firm specializing in family law. I can't think of a thing to add to Imogen's response which is provided verbatim as follows:

Unfortunately it is not uncommon that one spouse incurs debt during the marriage of which the other spouse is completely unaware. Whether or not you are responsible for the debts based upon your marriage depends on several factors which I outline below.

Although hindsight is always 20/20, it is very important to be proactive in making yourself aware of both your and your spouse’s finances throughout your marriage, even if you keep your accounts separate. Be sure you understand how expenses are paid and how your incomes are used. If your monthly expenses exceed your combined monthly incomes, it’s likely that debt is being incurred to cover the shortfall. It is prudent to run a credit report on yourself and your spouse from time to time to ensure that there are no “surprises.” You don’t want to find yourself in divorce court down the road explaining to the judge how you had no idea that all those vacations you took during the marriage were put on credit cards you knew nothing about.

My first question is whether the credit card and personal loan debts are jointly held or held in your husband’s individual name. If you have unknowingly been obligated on a debt or your name has been used for a debt without your authorization, then you may have other causes of action, such as fraud. For purposes of this response, I will assume that the credit card debt and personal loan you reference are in your husband’s name alone. In this instance, the creditors can only seek to collect against your husband individually, and they cannot seek to collect the amounts owed from you or place a lien on joint assets. However, if there is an asset titled solely in your husband’s name, your husband’s creditors may place a lien against it to satisfy a debt in his name, regardless of whether the asset is marital. For example, if your husband owes $10,000 in credit card debt and has a vehicle acquired during the marriage that is paid off and titled in his name only, then a judgment creditor could seek to use the vehicle as a means to satisfy the debt. If you later separate, you could ask the divorce court to credit you for your marital interest in the vehicle that was used to satisfy such a separate (i.e. non-marital) debt.

If you and your husband do separate, then how will the divorce court handle these debts? The answer depends on whether the debts are “marital.” A debt is classified as marital if it is 1) incurred during the marriage 2) by either or both spouses, and 3) was for the joint benefit of the parties. This is true regardless of whether the debt is held jointly by both spouses or individually by one spouse. The spouse claiming that a debt is marital has the burden of demonstrating numbers 1-3 above. In your case, your husband would have to demonstrate that the debts were for your joint benefit in order for the court to classify these debts as marital. If the debt is marital, then the court will distribute the debt as part of the marital estate and there is a presumption that an equal division of the marital estate (assets and debts) is fair.

If the debt was incurred for items that did not benefit both of you, then these debts will be considered his separate debt and sole responsibility. For example, if your husband used the loan proceeds for cosmetic procedures in anticipation of returning to the dating scene, it will be difficult for him to show that you jointly benefitted from this expense. The divorce court would accordingly likely classify this as his separate debt. If instead the credit cards and loan proceeds were used for household expenses or items from which you both benefitted (for example, vacations) then it will be difficult to contend that the debts are not marital – even if you were not aware of them.

I hope you find this information useful. For further insight and for legal advice regarding your situation, I would suggest consulting with a family law attorney practicing in your county.

Thanks Imogen!