The website MarketWatch publishes a kind of Dear Abby column related to family finances that touches on some very real subjects confronting families today. On July 2, columnist Quentin Fottrell published a column in which a wife laments her husband’s spending habits and wonders whether she could be liable for his debts should he die.
The wife professes that she loves her spouse, but they have completely different perspectives on how to spend money. Husband is reported to have $75,000 of credit card debt and is shopping for $8,000 of season tickets for a local sports team. Wife wants to know if he dies whether she could be liable for these kinds of debt because she is has significant consumer debt of her own.
This problem is scarcely unique. People can really adore each other while having completely opposing views on many subjects, including finance. Unfortunately, the legal world doesn’t have many useful remedies to address financial conflict. The law says there are four kinds of debt. As between you and your creditors, there is individual debt and joint debt. American Express can’t sue you for the $75,000 your spouse ran up on his Platinum Amex unless you signed up for the debt with him. If hubby dies, they can only recover that debt if he has more than $75,000 of assets in his name alone. But suppose the day comes where the debt climbs to $100,000 and you can’t stand it anymore. Alas, in a divorce, if that debt accumulated while you and your spouse were married, the court is supposed to divide the debt between the two of you equitably. You might be able to show that the entire $100,000 was spent on antique car restorations, a collection of handmade bowie knives and tickets for the Penguins. Some judges and hearing officers will be sympathetic and stick him with most of the debt. However, many others adopt the laissez-fair view that if you stayed married while he racked up the debt, you get your half of it in sickness and in health. The case law on this is very spotty and, more often than not, the debt includes things that appear ego driven while other things are clearly family needs (e.g., summer camp, unreimbursed medicals, a stint in rehab). This may sound very inequitable but courts often take the approach that it is their job to divide the debt as it stands on the date of separation rather than sit through a lengthy rehash of how one spouse tried without success to rein the other’s spending in. Rare are the cases where the debt amasses quickly. More typical is the situation where a spouse compensates for his/her unhappiness by purchasing “things”. Another common problem is the spouse who quits or loses a job only to decide that now is the perfect time to open a sporting goods store a mile away from Dick’s or an ice cream parlor next to the Dairy Queen. That debt is going to be marital debt even if you told your spouse that the idea was crazy, and you were against it.
So, what can you do? Hate to say it, but it is time to talk with a divorce lawyer before the crisis escalates. To ignore the problem means that what you saved for retirement or the rainy day gets pitched into the pyre of marital debt. Understand that your protests along the way to financial Armageddon will be considered in divorce but may also be completely ignored when the property distribution is made final. Even things like the $100,000 loan your spouse took to educate the kid from the former marriage is still marital even though you received essentially “zero” value for the debt. That’s a bad place to be but only you can stop the debt train before it leaves the tracks.