Can you inherit debt from your spouse? In the awful situation that your spouse passes, the last thing you want to focus on is their debt. Unfortunately, if your spouse had significant debt before their passing, you may worry that you will inherit it.
In most cases, a deceased person’s debt is not passed down to their spouse or their family members. Typically, the assets that a person had before their passing are used to pay off any debt. However, any jointly owned finances, such as a home, can end up being the survivor’s responsibility.
Inheriting a spouse’s debt is rare. Despite its rarity, there are some ways your spouse’s debt can become problematic. Thankfully there are also ways to avoid it. Let’s take a deeper look at whether you can inherit debt from your spouse.
Table of Contents
There are some types of debt that are inherited after death.
If the deceased die with a mortgage on their home, whoever inherits the home is responsible for the debt. If the house was owned jointly, the survivor is responsible for the debt.
It is unfortunately very common for a spouse to end up with the responsibility of a home mortgage because most couples own their homes jointly. If the debt is not paid, the bank may take the house and sell it to satisfy the mortgage.
Joint returns are also a liability.
If you and your partner file a joint return, the IRS considers you equally liable for each other’s tax bill. If your spouse underreports their income and then dies, you are left responsible.
The IRS can then collect from you.
There are some things you can do to protect yourself from this.
Primarily, you can claim innocent-spouse relief. Innocent-spouse relief means that you were unaware of your spouse’s tax shortfall. Unfortunately, if your claim is denied, you will still have to pay.
Credit Card Debt
Credit card debt is usually not inherited, but it occasionally can be.
The only way you can inherit credit card debt is if you were the joint owner of the account. If you make an effort to keep finances separate during your marriage, credit card debt is not something people have to worry about.
Worried About Inherited Debt?
If you are in danger of inherited debt, it is a good idea to get legal help.
Talking to an attorney after your spouse has passed is a great first step toward financial freedom. Do not feel guilty for thinking about finances after a bereavement.
Taking the financial pressure off may allow you to grieve more healthily.
If you are being pressured by debt collectors to pay, an attorney is almost always necessary. Understanding your responsibility in repaying your spouse’s debt requires a good attorney who understands debt collection laws and estate planning.
Using Assets To Pay Off Inherited Debt
When someone dies, their assets are usually laid out in a will.
If the person owes any debts or has any liabilities, those debts are typically paid off before the assets are distributed to the heirs.
Because of this, a person’s assets usually pay off any debt.
After a person dies, all of their assets are put together and called an estate.
This includes cash in the bank, a house, a boat, a business, and even fancy jewelry. If the deceased has debt, these things are used to pay it off.
Selling these things is very time-consuming and requires large amounts of paperwork. Compiling that paperwork is the responsibility of the estate’s administrator. This doesn’t have to be you. If it helps, hire someone to be in charge of compiling your spouse’s assets.
Unfortunately, if the assets are distributed before the debts are paid, the heirs may have to pay off that debt. This can make matters more difficult.
Anything that was jointly owned between a couple will also likely end up being the surviving person’s responsibility.
Why Location Matters
You are more likely to end up with your spouse’s debt depending on where you live.
In community property states, your spouse’s individual debts are usually yours as well.
The nine community states are:
- New Mexico
The remaining states are common law property states. In these states, couples do not share individual debts. However, even in these states, creditors may have the right to take property that is jointly owned by you and your spouse.
Of course, if you’re not from the united states, your laws may slightly differ. Make sure to check the specifics of your country.
How To Protect Yourself From Inheriting Your Spouse’s Debt
Communicating with your spouse now can protect yourself from inherited debt.
I know it’s an awful, morbid discussion to have.
But remember that it can safeguard your family for the future.
Keep Things Separate
In a marriage, you probably share most things.
If you want to protect yourself from debt, there are some things that should still be kept separate.
This may sound against the grain. However keeping in mind the dangers of inherited debt while both you and your partner are still alive, leads to a smoother legal process and saves you money if tragedy does strike.
Open separate bank accounts.
Take out loans under only one name.
These actions would limit your vulnerability to creditors and courts after your spouse’s passing.
Another precaution to take is to write up a prenuptial or post-nuptial agreement.
Discuss the content of this agreement in great detail with your spouse. Within this agreement, you can state that your income and your debts are to be kept separate.
To save yourself from debt, you can also declare bankruptcy.
This is definitely a last resort.
But – it can be extremely effective.
If you are responsible for some of your spouse’s debts, declaring bankruptcy can wipe those charges away. Ideally, bankruptcy will cause the debt to be completely cleared, but in other cases, the debt may just be decreased and you will still have to pay it off through a monthly payment plan.
Filing for bankruptcy can also protect your deceased spouse’s assets from creditors.
Creditors may use the courts to try to seize your spouse’s portion of that asset. This is especially important if you own a home or vehicle with your spouse.
Filing for bankruptcy can also save a home from foreclosure. If your spouse left behind a large mortgage as well as large amounts of unsecured debt, paying both of those financial burdens can be almost impossible. Filing for bankruptcy can eliminate a lot of those unsecured debts, leaving more money to pay a mortgage.
Summary – Can You Inherit Debt From Your Spouse?
If you’re reading this because the worst has happened, I am very sorry.
Hopefully knowing that there are financial options available will allow you to focus on yourself and your family during this difficult time.
If you have any questions, please don’t hesitate to reach out.