Should people in debt go to certain states to get married?

March 14, 2009 6:48 PM

What's the deal with married people being responsible for each other's debts, even ones they incurred before they got married? In most states, are married people really considered to be like one person when it comes to financial matters? I mean after all, you're not "one person" until you get married, so how would you be responsible for past debts of someone before you even met them?

I have heard of this before, but always found it hard to believe. It seems so outdated in this day and age, that banks, credit card companies, Sallie Mae, the IRS etc. would actually dun a spouse for debts incurred by the other spouse before marriage. I always assumed that this is what some people believed who didn't know that it's not like that anymore. However, from responses I read to a recent AskMe, it would appear that this is still normally the case. How many people are even aware of this before they get married?

I understand the motive all right...if one spouse can't pay, we'll just make the other one cough up this money that they never even spent in the first place. So where's the hue and cry from an outraged public? Why would many people even WANT to get married?!

Regarding this topic, are you safe with the IRS as long as you file separate tax returns?

Should people in debt go to certain states to get married? If so, why haven't I ever heard of people doing this?

posted by serena15221 to work & money (13 comments total)

You are misunderstanding the principle of the thing.

Married people are understood to be one person - having shared all the previous debts of both spouses, the previous credit records, etc. - only insofar as they enter business dealings together. Which is to say: if they buy a house together, and both spouses' names are on the note, then both spouses' credit and debts enter into it.

I have sizable debt. My spouse does not. I have bad credit. She is our reference on our rented house - because her credit independantly is better than mine.
posted by koeselitz at 7:00 PM on March 14

... and yes: if you file separate tax returns, you are safe with the IRS - they will see your money as separate.

What's more, if you end up owing taxes that you didn't know about because your spouse deceived you about income or debt, there are recourses with the IRS - they won't charge you for that. An accountant could probably tell you the proper form numbers.
posted by koeselitz at 7:02 PM on March 14

Here are some much clearer and more comprehensive answers from lawyers.
posted by koeselitz at 7:14 PM on March 14

Should people in debt go to certain states to get married? If so, why haven't I ever heard of people doing this?

You are also misunderstanding that the state in which you get married has any bearing on this. The only instance in which you would care is if you were getting divorced and thus splitting the debts back up, right? So people in debt should research which state to live in for long enough to establish residency before filing for divorce. It makes no difference where they got married.
posted by peanut_mcgillicuty at 7:53 PM on March 14 [1 favorite has favorites]

You can always get a prenuptial agreement.
posted by hermitosis at 8:08 PM on March 14

"and yes: if you file separate tax returns, you are safe with the IRS - they will see your money as separate."

"You can always get a prenuptial agreement."

I've read in previous AskMe threads (can't find 'em at the moment, unfortunately) that neither of these will stop the IRS or collection agencies from coming after one spouse for the other's debts.

"if you end up owing taxes that you didn't know about because your spouse deceived you about income or debt, there are recourses with the IRS - they won't charge you for that"

I've also heard, in another AskMe thread, that it isn't that simple, that you have to also be able to prove serious abuse or something similar in such cases.

Is everything I've already read on AskMe re: this subject incorrect?
posted by limeonaire at 8:25 PM on March 14

limeonaire, there is an Innocent Spouse rule. The IRS made it official after pressure from Congress a few years ago. It is intricate and probably requires a tax lawyer for most people to navigate.

The IRS also sez:
As discussed above, in some circumstances states allow private creditors to reach more than half of community property to satisfy the debt of one spouse. In most states this depends on whether the obligation arose or was incurred before or after marriage. Therefore, to determine the available remedy it is important to know when the spouses were married and when the liability was incurred.

I don't agree that it is normal that premarital debt is considered joint debt after marriage in most community property states. The laws probably cover a bell curve of situations, with the bulk centering around some sort of pragmatic division of the debt into pre- and post-marital segments.

Your wording, however, is that creditors "would actually dun a spouse for debts incurred by the other spouse before marriage". Dunning is certainly possible. The creditor and specifically the collection agency has no way of knowing off hand what type of debt this is. Going to court would probably be necessary to make it clear to most private creditors (who unlike the IRS don't have forms for it) going after an innocent spouse.
posted by dhartung at 10:12 PM on March 14

limeonaire: I've read in previous AskMe threads (can't find 'em at the moment, unfortunately) that neither of these will stop the IRS or collection agencies from coming after one spouse for the other's debts.

As the link above points out, the IRS (and some serious collection agencies won't come after one spouse for another's debts; however, they will come after joint properties like houses, cars, bank accounts, etc.

I've also heard, in another AskMe thread, that it isn't that simple, that you have to also be able to prove serious abuse or something similar in such cases.

From Publication 971 - Innocent Spouse Relief:

You must meet all of the following conditions to qualify for innocent spouse relief.

1. You filed a joint return.
2. There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or have known of the understated tax former spouse).
3. You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed). See Actual Knowledge or Reason To Know, later.
4. Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax. See Indications of Unfairness for Innocent Spouse Relief, later.


So apparently not.
posted by koeselitz at 10:27 PM on March 14

Link to Publication 971.
posted by koeselitz at 10:28 PM on March 14

In community property states at least (the model I am familiar with), debts incurred before marriage are "separate" debts; they are the responsibility of the individual who incurred the debt. Same with property -- the person comes in with their own property, which is separate property.

During marriage, assets and debts can become intermingled, and can increase in value, so dividing the separate debt from the community debt at divorce can become a bit complicated. (E.g. the appreciation on separate property belongs to the community.)
posted by ClaudiaCenter at 12:11 AM on March 15

In community property states, the spouse is not responsible for debts incurred before the marriage. I am more hazy about states that aren't community property, but I think the same is true.

Re: whether or not debt collectors will still come after the spouse, they ABSOLUTELY will. They're not supposed to, though. That's what the lawyers are for.

This information is based on a recent (~week or two ago) discussion with a bankruptcy lawyer. I was married in a community property state, but my husband is not going to be held liable for any of my debt. The lawyer told me that the debt collectors will go after whoever they think they can get money out of, which includes pretty much anyone related to the debtor, not just spouses. It's not illegal, iirc, for someone to pay someone else's debt, which is why they will try to hassle others into doing it. However, it's not those people's legal liability to pay for those debts either; nothing will happen to them if they don't pay it. The debt collectors, though, usually don't mention either of these things and just do their best to freak the person out. It's my impression that they do this as best they can without lying, so that the idea they will be punished for not paying is in the head of the relative, which isn't to say they may not try lying anyway.
posted by Nattie at 7:40 AM on March 15

FYI, I personally tried to file innocent spouse when my ex-husband owed $5000 to the IRS due to lying on our final tax return. At the time we filed, I did not live with him, and the falsified documents he gave me looked real (i.e., he created fake pay records and told me to file them in our joint return).

I did. My innocent spouse claim stated that I had no knowledge the records were false, that we didn't live together, and that hubby was a drug addict who knowingly admitted to people he faked the documents in order to get tax return money that wasn't his (because he did). However because the previous return went into direct deposit I was held 100% liable.

I had a tax lawyer helping me and my claim was rejected in court.

So, that's my personal, as-recent-as-this-past-16-months-ago experience with being forced to pay a spouse's debt.

The IRS never even TRIED to get the money from him, he was not subpoenad to court and I was not allowed to pay half the debt... I was forced to pay ALL of it.

So take that info as you will re: spousal debt and taxes. I was literally told in court that unless I was forced to sign the tax return under threat of violence I was 100% liable because 1. we filed jointly and 2. the refund was direct-deposited into MY bank account.

I didn't think it was fair, but life seldom is. Koeselitz, I thought with 3 different sworn affidavits and a statement from his company that they never printed the documents I'd be in the clear... I was held liable anyway.
posted by Unicorn on the cob at 9:12 AM on March 15 [1 favorite has favorites]

Wow. Voice of experience.

I'm sorry you had to go through that, Unicorn. I should have known that the IRS would make it harder than it should be to get around that kind of thing. Guess that's the evil side of the nice tax break married people get.
posted by koeselitz at 9:51 AM on March 15