Young couples are delaying marriage and their plans for a family, longer than ever before. The reason, according to a recent report from HIS Global Insight, may be record-breaking student loan debt. Substantial debt repayment plans may leave young couples with less money to pay for a wedding or less savings for a down-payment on a new home. But, the effect of marriage on your finances doesn’t end with your disposable income.
Together, But Separate
Even though you and your partner are uniting your lives, your individual credit reports will remain separate and unaffected by your legal union. Marrying someone with a better or worse credit score will not increase or decrease your personal credit score. Also, any debts that are in your name alone will continue to be your sole financial responsibility – even after you are married. Marriage does not automatically merge all your individually incurred debts into a joint responsibility. Unless…
Exception – Student Loans
Depending on where you live, student loans – even those that were taken-out before marriage – can become a joint liability. If you live in a “common property” state, individual student loans become the responsibility of the couple. If your spouse has outstanding student loans (before marriage) they will become your responsibility after marriage. This allows creditors to come after your assets to pay back your spouse’s student loan. “Common property” states include: Arizona, California, Louisiana, Idaho, New Mexico, Texas, Wisconsin, and Washington.
Marriage may also affect the re-payment terms of your federal student loan. If your federal loan payments are based on a percentage of your income, getting married could mean you will have to pay more. Filing your taxes together as a married couple or simply living in a “community property” state will likely increase your household income and therefore increase your monthly payment.
If there is a significant difference in the amount of debt you and your future spouse carry and/or your individual credit scores, you may want to delay creating a joint account. Paying student loans from a joint checking account may inadvertently make that loan a joint responsibility (in non-“community property” states) and give creditors the ability to cease assets from the joint account to pay the loan.
Joint credit card accounts have the ability to either help or hurt you as a couple. If your spouse has a poor credit rating and you add him or her to your account, that account will now appear on both of your credit reports. If the bill is consistently paid on time, this could help your spouse’s credit rating. If your spouse is irresponsible with the card and your bills are not paid on time, both of your credit scores will be negatively impacted.
If you are applying for credit together, after you are married, both of your credit scores will be taken into consideration. This makes it very important to know your individual credit scores before making an application for new credit. If one of you has great credit and one of you has poor credit, your new borrowing may be declined or your terms and interest rates may be less ideal.
In “community property” states, any debt incurred by either partner, during a marriage, are considered a liability for both partners. This includes credit cards or loans that are in the name of only one spouse. However, in other states that follow “common law” property rules debts in the name of one spouse remain the sole liability of that one spouse – except when the debt is incurred for the benefit of the family, such as a loan for home repairs.
While pre-nuptial agreements are less than romantic, they may be something you will want to consider to protect yourself from being responsible for your spouse’s individual debts.
Just because someone has debt or poor credit doesn’t necessarily mean that they are financially irresponsible or that you shouldn’t marry them. But it is important to discuss your individual financial standing before you decide to walk down the aisle. Having a financial plan or strategy in place before you are married will mean fewer surprises and greater financial security for both of you.
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