No one likes to think about the death of a spouse. But it does open issues that could have a significant impact on the surviving spouse’s finances. Debt is one of those issues, since most people will have at least some at the time of death.
In most cases, the deceased spouse’s debts won’t be collectible from the surviving spouse. But there are some situations where they will be, and a few others where they can be—if you don’t know how to handle the situation.
We’re going to discuss various scenarios under which the surviving spouse may or may not be liable for the deceased spouse’s debts. But please keep in mind that each discussion is general, since there will be differences from state to state. Though there are some general national regulations, each state sets their own policies. You will need to become familiar with the laws in your state. This will most likely require you to consult with an attorney.
So which debts can be collectible from surviving spouses after death?
It depends if the surviving spouse is on the account
One important dividing line is whether or not the surviving spouse is actually on the account. That is, the surviving spouse was on the initial loan application, and has been jointly liable for the debt incurred. In this situation, the surviving spouse would be fully obligated to continue making payments on the debt.
However, if the debt was solely held by the deceased spouse, the surviving spouse generally has no obligation. This also includes spouses who are merely authorized users. An authorized user may be able to use the account to incur debt, but they are not legally responsible to make repayment.
If the estate goes through probate
If the estate goes through probate, any debts of the spouse that are in existence at the time of his or her death may be required to be paid through the estate.
Probate might occur if the deceased spouse has not left a will, or if the terms of the will have been challenged.
If probate is required, the creditors may be entitled to payment from the assets in the estate. This can include liquid assets, like bank accounts. It can even require the sale of certain assets, such as stocks, real estate, or personal assets.
However, there are two major asset categories that are exempt from creditors on a nationwide basis. These are retirement assets, particularly employer-sponsored plans, and the proceeds of life insurance policies. Exemptions of IRA accounts, however, vary by state—although most states do protect those accounts from creditors.
Certain physical assets may also be exempt from creditor’s reach. This can include a certain amount of equity in a primary residence, one or two automobiles, and a dollar limit on personal possessions.
If the estate does go through probate, the executor will be required to post a public notice alerting creditors.
Community property states
The situation becomes more complicated if you live in a community property state. Those states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
NOLO.com describes the community property situation as follows:
“In community property states, a husband and wife are each equally responsible for paying each other’s debts as long as one of them acquired the bill during the marriage. It doesn’t matter whose name is on the bill. As long as one spouse owes money to someone else, that creditor can sue and get a judgment against both the husband and the wife. For example, if the husband likes to gamble and racks up a $50,000 poker debt, the wife is also responsible for paying back the casino or card room.”
There might be certain benefits for a state that has community property status. But debts incurred by the spouse most certainly isn’t one of them.
Secured vs. unsecured debts
Unless you live in a community property state, if the debt was held by your spouse alone, you’re not required to pay the debt upon your spouse’s death. But that’s only if the debt was unsecured.
If the debt is secured, say by real estate or a car, you’ll most likely be obligated on the debt even if your spouse dies. That’s because you are the owner of the asset that secures the debt.
In any case where an asset, such as a house or a car, is pledged as collateral, the lender can seize the property in the event of nonpayment. The fact that the lender can seize the property will make you indirectly responsible for the loan.
To keep the property, you will have to continue making payments on the loan. If not, you’ll have to sell the property in order to pay the debt in full, or use other assets.
If the surviving spouse assumes the payments
This may be a bit of a moral dilemma for a surviving spouse. Out of a sense of obligation, a surviving spouse may continue to make payments on debts held in the name of the deceased spouse only. Should that happen, the creditor may have the legal right to assume that you’ve taken over responsibility for the debt.
Collection agents are aware of this loophole, and may press you to make a few payments. But you should never make those payments without first consulting an attorney. Though it may seem like the right thing to do, it can create an obligation where none would’ve existed.
What to do with debts when a spouse dies
Exactly how you should handle any debt obligations of your spouse after their death will depend on the laws in your state. For that reason, you should schedule a consultation with an attorney as soon after your spouse’s death as possible. And certainly before you begin paying any debts that are not specifically yours.
Four unsecured debts in your spouse’s name, you should contact the creditors as soon as possible. You will not only need to let them know that your spouse has died, but you will be required to provide certain documentation, including a certified copy of the death certificate.
When you provide documentation, be sure to include your spouse’s name and account number for each creditor. Also, keep copies of everything that you send out, as well as a log of any conversations you had with creditors.
The Federal Trade Commission has specific regulations dealing with the debts of a deceased relative. You should review those regulations, so that you will know your rights. There are legal limits on what they can do, and you need to know what those are so that you can avoid any problems before they become serious.