When are you Financially Responsible for your Spouse and Family Members?
One of the biggest concerns that debtors have, is that they will die and leave their loved ones with all their responsibilities, including their debt. They worry that they’re leaving only misery and destitution to their spouses and their children, and it’s a viable concern to have.
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However, things are probably not as bleak as you think because your family members aren’t always responsible for your debt.
When Are Your Loved Ones Responsible for Your Debt?
Whether you will inherit debt from a loved one after their death depends on several factors, including their relationship to you and your relationship to that debt. The instructions left in the will may also require action on your part.
Are You Responsible for a Spouse’s Debt?
If you live in a community property state, including Louisiana, Texas, Washington, California, Arizona, Nevada, Idaho, and New Mexico, then you may be responsible for your loved one’s debts after they die. However, there are a few notable exceptions, including all debt that was accumulated before you were married.
This can become a serious problem for you if your spouse left very few assets and a lot of debt, so it’s something you should discuss with a lawyer as soon as you can. You will also become responsible if you cosigned on the debt, but not if you were simply added as an authorized user.
If you don’t reside in a community property state (or the debt was accumulated before you were married) and didn’t cosign, you will not be responsible for it. In this case, the debt will simply pass into the decedent’s estate, after which their creditors will seek their pound of flesh.
There is a list of priorities for all debt, with tax debt and medical debt accumulated within 6 months of death being at the top of the pile and unsecured debts (credit cards, personal loans) at the very bottom.
Let’s assume, for instance, that your spouse had no house or car but had $12,000 in cash investments and the following debts:
- Recent Medical Debt = $5,000
- Tax Debt = $5,000
- Credit Card Debt = $30,000
In this case, the medical debt and tax debt will be repaid in full, while the remaining $2,000 will go towards the credit card debt. After that, the debts should be cleared. If it’s in the hands of debt collectors they may continue to chase it, even though no one is legally obligated to repay it (see below for more details).
It’s also worth noting that if that cash is in a joint account, it will become yours and will not pass into the decedent’s estate.
If they have a house and this is passed onto an heir, the heir will be required to continue making repayments, allow the bank to repossess the house or repay the balance in full. The same applies to car loans.
Are You Responsible for a Parent’s Debt?
Your parent’s debt will be paid by their estate or by their surviving spouse, if they live in a community property state. As a child, you are generally not responsible for their debt.
However, some states have a law known as filial responsibility, which makes adult children responsible for supporting parents who are unwell and don’t have the means to support themselves. If the parent accumulates medical debt, the child may then become responsible for it. However, these laws are rarely enforced. If you live in one of these states and are concerned the laws will be enforced, consult with a lawyer.
Children designated as heirs may also be tasked with managing mortgages and other debts attached to secured loans, but unless they’re keeping one of these assets, they will not be asked to make any payments on their parent’s debt.
Are You Responsible for a Partner’s Debt?
Unless you cosigned on loans or accounts, you will not be responsible for the debt of a boyfriend or girlfriend. You will also not be responsible for a business partner’s debt, unless that debt is tied to the business or to you personally.
However, as discussed above, you may become responsible for a secured debt if you assume control of an asset.
When Debt Collectors Try to Collect
You may be tricked into repaying the debt of a recently deceased loved one even if you are not legally responsible for it. There is no law to stop a debt collector from hinting that you need to repay a deceased spouse’s or parent’s debt. Many will contact you after the death and suggest that you are morally responsible for it, because requesting a settlement sum or a payoff strategy.
They may pretend to be doing you a favor in creating a payoff strategy that works around their finances, but they really just want you to start paying, at which point you will become responsible for the debt.
It’s a questionable and heartless practice, but it’s important to remember that debt collection agencies are there to make money and, contrary to what they say, they don’t care about you or your recent loss.
How to Protect Your Loved Ones After Death
What happens if you have a lot of debt, no assets, and no desire to leave your loved ones destitute when you die? If you live a community property state, this is even more of a concern, but there are a few things you can do.
Firstly, it’s important to repay as much of your debts as you can, focusing on the debts that will take priority after your death. Secondly, consider getting a life insurance policy and make sure you assign a number of beneficiaries.
A sizeable life insurance policy will pay a cash sum upon your death and this will help to protect your loved ones. By assigning beneficiaries, you will prevent your payout from going to your estate, at which point it can be collected by your creditors and used to cover your debts.
Summary: Know Your Rights
Losing a loved one is very difficult and can bring your life to a screeching halt. Work, hobbies, your social life—everything is put on hold as you deal with the grief and the chaos of funerals, informing financial institutions, and dealing with probate.
The last thing you want at this time is a persistent debt collector trying to convince you that you’re responsible for your spouse’s or parent’s debt.
The good news, as discussed above, is that, in the vast majority of cases, you are not responsible. If you didn’t cosign and don’t reside in a community property state, you can assume that you’re safe and just inform those agencies to stop contacting you. If you’re a son or daughter and didn’t cosign, you can do the same.
If you’re the exception to the rule, contact a lawyer and see how they can help you. There are other things you can do to escape this responsibility. For instance, most student loan debt is automatically forgiven upon death, even if the debtor was the cosigner and not the student.
There is also a statute of limitations on debt that removes all your legal responsibility once a predetermined period of time has passed.
Generally, if something doesn’t sound right and you feel like you’re being tricked, you probably are and should consult with an expert before you agree to anything.