AM I RESPONSIBLE FOR MY SPOUSE'S DEBT WHEN THEY DIE?
The death of a spouse is a trying and stressful period for the surviving partner. As much as you might want space and time alone to process your grief, you may have certain responsibilities related to settling your deceased spouse’s affairs, including paying off their debt.
Most Americans have some type of debt. The obligation to pay debts does not necessarily go away when a person dies. While most debts are paid by the deceased’s estate (money and property owned by the decedent at their death), you may be responsible for paying off remaining debts. You should discuss questions about your debt payment obligations and rights with an estate administration attorney or probate attorney.
DEBTOR NATION
About 80 percent of Americans have some type of debt, from credit-card debt and student loans to mortgage debt and personal loans. An estimated 13 percent of Americans with debt expect that they will never pay it off during their lifetime.
The average American has more than $90,000 in debt. As a whole, Americans owe $14 trillion. It may come as a surprise that individuals ages 45 to 54 have the highest average debt. While Gen Xers have the largest average debt balance ($135,000), Baby Boomers, many of whom are at or near retirement age, hold the next-largest debt load (nearly $100,000). Members of the Silent Generation (age seventy-five and over) owe about half as much as the average Millennial, but people in the highest age category still have significant debt, owing an average of more than $40,000.
Debt does not discriminate by age. Even as people near the end of life, they can struggle financially. When a debtor passes away, the surviving loved ones must answer to those debts.
PROBATE AND DEBT PAYMENT
The legal process for distributing a person’s property after they die is called probate. During probate, the assets of a person who has died may be distributed by the courts according to their last will and testament. But first, debts are paid. Remaining assets are then passed on to heirs or beneficiaries.
Generally, only assets that the deceased person owned in his or her name alone go through probate. Assets such as life insurance policies, trusts, and jointly owned property are not subject to probate. In addition, each state has different rules for prioritizing the order in which debts must be paid. Usually, the estate pays funeral expenses and estate administration costs (in Ohio they are usually 200-250 dollars) first, followed by taxes and then other forms of debt, such as loans and credit card balances.
This explanation of how probate works is, of course, extremely simplified. An attorney specializing in estate planning and administration can fill you in on the complete process and what is expected of you.
WHEN YOU MAY BE LIABLE FOR A SPOUSE’S DEBTS
An estate that lacks the money to pay off its liabilities is known as an insolvent estate. There may be nothing a creditor can legally do to collect a debt from an insolvent estate, and the debt could just go unpaid. But, in the following situations, you need to pay your spouse's remaining debts:
You cosigned for a loan.
You are the co-owner of a credit account.
As a result, if the estate is insolvent and cannot cover its debts, you may be personally liable for paying them. Creditors can pursue you for medical bills and outstanding credit-card charges, among other things. They may also be able to garnish your wages, put a lien on or seize your property, or take money from your bank account.
SPOUSAL DEBTS AND DEALING WITH DEBT COLLECTORS
Unless you are legally obligated to pay your deceased spouse’s debts, you should not have to worry about spousal debt. But debt collectors may contact you anyway.
Creditors could attempt to collect the money they are owed from assets that pass to you outside probate. They might even try to sue you personally to collect the debt. Neither of these tactics will work, but simply ignoring a legal filing is a bad idea. You may need to hire an attorney to prove that you are not liable for your spouse’s debt.
Debt collectors do have the right to contact a deceased person’s spouse to find out who is authorized to pay the estate’s debts, according to the Consumer Financial Protection Bureau. However, they cannot represent that you are personally responsible for paying the debt unless you are legally obligated to do so.
As a debtor’s surviving spouse, you have the right to tell a debt collector to stop contacting you. You can submit a written request to not be contacted. Debt Collectors must comply to this. In spite of that, they can still try to collect the debt from either you or the estate with an official filing.
Any debt that you do not personally owe should not affect your credit score. Although a debt collector could improperly report your spouse’s debts to a credit reporting agency under your name. If this occurs, contact the credit reporting company and file a dispute to get the information removed from your credit report.
TALK TO AN ESTATE ADMINISTRATION ATTORNEY ABOUT DEALING WITH SPOUSAL DEBT
Are you unsure of your rights and obligations regarding a spouse’s debts? An estate administration attorney can answer your questions and advise you on which steps to take next. Contact us at (614) 389-9711 to set up an appointment.
There are many estate planning tools out there that you can use to protect your family's assets from creditors. One of them is a revocable living trust. An experienced estate planning attorney can help guide you through your options.
If possible, it's best to avoid debt all together. The financial advocates at our sister company, DuPont Wealth Solutions, can teach you how to be Debt Free For Life.
If you have any questions about estate laws, don't hesitate to contact us. We are happy to advise you.
Sources
[1] American Debt Statistics, Shift Credit Card Processing (Mar. 2021), https://shiftprocessing.com/american-debt/.
[2] Megan DeMatteo, The average American has $90,460 in debt—here’s how much debt Americans have at every age, CNBC (Nov. 18, 2021), https://www.cnbc.com/select/average-american-debt-by-age/.
[3] Am I responsible for my spouse’s debts after they die? Consumer Fin. Prot. Bureau (May 16, 2022), https://www.consumerfinance.gov/ask-cfpb/am-i-responsible-for-my-spouses-debts-after-they-die-en-1467/.