Marriage and Debt: Yours, Mine & Ours

Posted in Debt Help
Posted by Ted Michalos, BA, CPA - LIT

joint-personal-debts1968 – Lucille Ball and Henry Fonda.  She has 8 children from a previous relationship and he has 10 (the film was popular enough that it was remade in 2005 with Rene Russo and Dennis Quaid).  Shortly after the couple marries the wife announces she is pregnant with number 19, they each adopt the others kids and it is one BIG happy family…  The end.

Allow me some poetic licence and instead of children, let’s talk about debt.  She owes $8,000 before marriage, he owes $10,000 and shortly after they tie the knot they add some more. Here’s how the new family should join forces.

Old Debt Vs New Debt, Your Debt Vs Joint Debt

First and foremost, don’t adopt your spouse’s debt.  The law treats financial contracts as distinct from marriage.  Only the spouse that signed for and incurred the debt is legally responsible to repay that debt.  It is important for you to know about each other’s financial situation, but there is no reason for either spouse to assume responsibility for the other spouse’s existing debts.

New debts are something different.  Depending on the nature of the debt, the lender may

  • require both spouses to sign for a debt (co-borrowers),
  • allow one spouse to borrow if the other co-signs or guarantees the debt, or
  • permit each spouse to acquire and assume their own new debt.

Just like the pre-marriage debt, you cannot be held legally responsible for your spouse’s debt (even after you are married) unless you sign for it yourself.  But if you do co-sign or guarantee the debts your lender will look to the second spouse if the first doesn’t make payment. These types of debts are commonly referred to as joint debts because you both are liable for repaying the entire loan.

From a practical standpoint, large ticket items – mortgages and cars, high limit loans and lines of credit are almost always issued jointly to married couples.  That means they require both spouses to sign for the new debt and if they do, both spouses are legally responsible to repay the entire debt.

So, what you typically see in a marriage is a mix of debts: yours, mine and ours.  Your existing and new debt, my existing and new debt, and our joint debt accumulated since we got married.

When Debt Problems Start

What happens if one or both of the spouses find themselves in financial difficulty after they’re married?  What debt management options do you have to deal with the problem?

The options to deal with money problems after you are married are the same as those available to single people to deal with their debts, plus, the couple may have the option of dealing with them jointly (together).

Each couple in a marriage has these same options:

  • Refinance or restructure your debt to make it more manageable. You need to decide if it makes sense to put up family or jointly owned assets as collateral, or to co-sign a new loan to support unsecured loans of only one partner. Remember, if you are not liable today you will be if you co-sign or guarantee your spouse’s debt.
  • One spouse, or both spouses, can file a consumer proposal or bankruptcy to deal with their debts individually.
  • The couple might have the option to file a joint consumer proposal, or a joint assignment in bankruptcy.

One of the most important things to remember at this point is the law treats each spouse as a separate and distinct individual.  One spouse may need to file for bankruptcy – that does not mean the other spouse has to do the same thing.  In fact, it is fairly common for one spouse to have financial problems serious enough to require a consumer proposal or bankruptcy, and for the other spouse to stay clear of the entire procedure.

Dealing With Debt Jointly or Individually

The decision for a person to file by themselves or with their spouse is based on the facts in each case.  We have had cases where one spouse files a proposal or bankruptcy while the other spouse does nothing, cases where one spouse files a proposal and the other files bankruptcy, and cases where the spouses file a joint proposal or a joint bankruptcy.  Each decision was based on the family’s situation and the legal liability for the debts.

Why would you ever file a joint consumer proposal or joint bankruptcy?  A few reasons come to mind.

  1. It might reduce the total cost of administration.  If the couple files one procedure instead of two then they are only paying for one procedure.  That can easily save the couple a couple of thousand dollars.
  2. There may only be one household budget – maybe only one spouse is working, or the family pools all income and expenses.  For whatever reason, it just makes more sense for the family to deal with the debt together.
  3. That leads to the third reason – it may be better emotionally for the family to deal with the debts together.  This may not sound like a compelling reason to you, but many people view this as something that can bring them together, as opposed to dealing with it separately which may tear them apart.

Yours, mine and ours.  I can’t image 19 kids – we have three and that’s a houseful.

I don’t have to imagine the debt. We deal with it every day. We can help you review your options should you or your spouse find yourselves with more debt than you can handle.

Now I have to check Netflix to see if they have either version of the movie…

dealing with joint debt

About Ted Michalos

Ted is our co-founder and is a Chartered Professional Accountant, certified Insolvency Counsellor, Licensed Insolvency Trustee, Consumer Proposal Administrator, and the President of Hoyes, Michalos & Associates Inc. Ted meets personally with clients in our Guelph office.

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