When you hear prenuptial agreement, you probably think about the rich and famous protecting their assets from a future spouse that the family may not approve of (either silently or very loudly). However, there are many reasons that everyday people should understand how their future spouse’s debt and credit can impact their lives, especially in a community property state like California.
- Avoid fights about finances in the future.
The number one cause of break-ups and divorce is financial or money issues. So, talking about finances, expectations, and the future is very helpful in avoiding problems down the road. Talk about how bank accounts will work in the relationship, how major purchases will be decided on, what you want to save for, what things are important to you on a regular basis. - Know what you are getting in to when it comes to major milestone purchases.
Understand how your spouse’s credit score may impact buying a house, a car, or qualifying for other major purchases. Contrary to what a lot of people believe, your credit scores are not merged together when you get married. You each have an individual credit score, but some lenders will use both of your scores to determine your interest rate and terms, especially mortgage lenders. - Know what you are liable for (even if the debt is before the marriage).
Paying for your spouse’s debts. Do you think that debts from prior to the marriage aren’t your problem? Not only does it add stress to the relationship, but technically, your wages (community property) can be garnished for your spouse’s premarital debts, including student loans. See #4. - Avoid pitfalls with student loans, repayment, and collection.
Student loans are a huge problem for many couples. If you are on income-based repayment for your student loans, have you figured out what getting married does to that calculation when your spouse’s income is included? This is often a very big issue for our clients and one to think about how to deal with before it becomes a problem. - Good planning for things that may (or may not) go wrong.
Finally, joint debts acquired during the marriage are not just split 50/50. Both of you are liable for the full amount and this often creates problems during a divorce case because the creditors do not have to abide by the family court division of debt. So, we often see one spouse assigned to pay a debt who doesn’t pay it, which then causes problems for the other spouse when the creditor sues him or her.
Remember, the elephant in every room is that people do not like talking about debt and credit problems. When you are joining your life with someone else’s, it is very important to understand your rights and options for the future. Jen Lee Law, Inc. offers a Premarital Debt Strategy Session to help couples figure out potential issues and get the marriage off on the right foot. Click here to schedule your Premarital Debt Strategy Session.
This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment.
