In today’s world it is common, or more accurately put, the norm, that debt is used to make purchases for the benefit of the family unit. Debt can be in the form of credit cards, lines of credit, mortgages, car loans, to name just a few. This debt can be generated with the knowledge and consent of both spouses, or in some cases without the knowledge and/or consent of both spouses.
The question is, are you legally responsible for all your spouse’s debt, simply because you are married to him/her?
Alternatively, you may have found your soulmate and you plan to get married. Prior to the marriage, or even possibly after, you learn that he/she has a significant amount of debt that you were not aware of. The concern is: will you assume legal responsibility for this person’s debt now as a result of marrying that person?
These are common questions and concerns for many of the people we meet. The simple answer to this is no, you are not legally liable for your spouse’s debt, strictly because you are married to him/her.
Generally speaking, in order for a person to be liable for a debt they must have signed the loan agreement establishing the credit facility. These types of debts are commonly referred to as joint debts.
Joint debts are debts that two or more people are responsible for. Common examples of joint debts are mortgages and bank loans. In these examples both parties signed for the loan at the time the funds were advanced. Loan statements provided by the lender will typically be issued with both names listed. In these loan arrangements, the lender has the right to request payment from one or both of the spouses.
It is also common practice for banks and other financial institutions (the “Lender”) to request a second party co-sign, or guarantee, a loan for the primary borrower. Where the primary borrower does not meet all of the Lender’s loan criteria, it may require the borrower provide a co-signer/guarantor. In these cases, the co-signor/guarantor has signed an agreement acknowledging their responsibility and is legally liable for the debt if the borrower defaults on the loan agreement.
In the previous examples, the debt is generally easily provable as a joint debt as a result of all parties signing the loan agreement. It is possible however, that in certain circumstances a person may be legally responsible for a debt as a result of their actions – even if they did not sign for the original credit agreement.
An example of such a debt can be credit cards. It is quite normal for an individual to submit an application for a credit card and on the application request a secondary card for his/her spouse. In these situations the spouse may not have to sign the application itself. In fact, it is possible that the spouse will not even be aware their spouse has requested the card in their name.
Credit cards when received will come with a Credit Card Agreement which specifies the terms and conditions of use of the card. It is normal that within this agreement it will be stipulated that the secondary card holder by signing the back of the card and then using the card acknowledges they are responsible for all purchases made on the card. More specifically, they are not only liable for the purchases they make, but also the purchases made by their spouse notwithstanding they did not directly apply for the card.
In these situations the credit card statement may only show the name of the primary card holder. This unfortunately leads many spouses to believe that they are not responsible for the debt if their name is not on the monthly statement. This may not be correct.
We understand and appreciate that the family unit will likely feel the financial crisis regardless of whether one or both of the spouses are legally liable for the debt. It is possible however that only one person may be liable for what is perceived as family debt.
Let the professionals at A. Farber and Partners Inc. help review your situation with you to clarify the positions of both spouses, in order to determine the best course of action moving forward. It may be that only one spouse needs to consider a formal filing, allowing the second spouse to keep their credit rating intact.