How to Avoid STD: Sexually Transmitted Debt
In marriage, what's your biggest financial risk? That your spouse has a secret vice, and I don't mean playing around with other partners. It's STD in a different form -- "sexually transmitted debt." Your beloved might be hauling the burden of excess credit card spending or unpaid student loans that have grown from a molehill into a mountain.
A new survey by CESI Debt Solutions, which coined the STD phrase, found that 80 percent of spouses spend money that their partners don't know about. A little bit here and there isn't a problem (the people surveyed thought that spending less than $100 didn't need mutual discussion). But $100 a week? That's financial infidelity. The sooner you find out, the better your chance of keeping the marriage intact.
Before you married, your spouse might not have confessed to the amount they owed, or didn't tell you enough for you to assess the financial challenges you'd face. After marriage, your spouse's spending might grow in secret, until you get the first call from a debt collector.
In relationships, money is the last taboo. Engaged couples typically talk about their dreams for the future, children, jobs, and earnings (or a general indication of earnings), but not the nitty gritty of net worth and debt. It seems crass and untrusting to demand a detailed accounting from someone you love.
But the financially promiscuous rarely change their habits when they enter a relationship -- at least, not at first. You have to corral them, which means finding out about the risk before hidden spending drowns you both. After marriage, you could find yourself on the hook for your spouse's spending habits. At the very least, you'll want to know how to protect yourself from ruin.
You'll be affected by your spouse's debts, even if you're not legally responsible for them. Paying them off will crimp your mutual living style. It could prevent you from getting a mortgage, because your partner's credit score is shot. Too much financial pressure will wreck what you're trying to build.
So before you marry, settle in for a little Financial Disclosure 101. Bring copies of your own bank statements, credit history, credit score, credit card statements, retirement accounts, and other investment accounts, and ask your intended to do the same. If you're already married and discover an explosion of spending, round up all the financial statements to get a clear picture of where you stand.
If your spouse turns out to be a secret spender, how much of the debt are you equally responsible for? Here's the rundown:
You're normally responsible only for loans that you cosign. Typically, this will be a mortgage or rental agreement, an auto loan or lease, or a joint credit card. If the marriage comes apart and your spouse bunks on the payments, you'll be responsible for the whole amount of these loans. That includes any debts on the joint credit card, even if you opposed the spending or didn't know about it.
You're not responsible for any debts that your spouse brings into the marriage. However, you can be affected by them. If old debts force your spouse into bankruptcy and you bought property or hold bank accounts together, his or her half could be forfeit, leaving you in trouble, too.
If your spouse takes out small-business loans after your marriage, you might have to co-sign, like it or not. Lenders typically want the business owner's personal guarantee of repayment, and will want the spouse on board as well, even if you don't work in the business. For example, it might be necessary to put up a jointly owned home as collateral.
The rules change in community property states. You're normally each responsible for debts incurred by the other after marriage, even if the debt is listed only in one spouse's name. But there might be exceptions, depending on the purpose of the loan. For example, if the debt was hidden and taken entirely for personal reasons -- say, a boat that the family didn't know about and that the husband used to entertain girlfriends -- the wife might be off the hook. Nevertheless, the lender could still come after the wife, by law.
A large and unpaid student loan will drag on your marriage until death. You cannot get rid of a student loan in bankruptcy. If it's in default, interest and penalties build at a rapid rate. The loan can be sold and resold to debt collectors, who will pepper you with phone calls. Your credit history will be a permanent mess. Child-care payments eventually end but unpaid student loans -- and collection efforts -- will chase you even in retirement. If unpaid, it's the worst debt to have.
Should you put off the wedding if your intended failed Financial Disclosure 101? Maybe, if the debt is large and you see no way that it's likely to be repaid. If your partner comes clean however, you can put together a mutual repayment plan. Meanwhile, keep your own credit card in your personal name and don't sign for any joint debts. (In some states, even separate cards might not save you. You could be liable if your spouse runs up bills for things that could be considered "family expenses" -- say, a sound system for your home. But you wouldn't have to pay for that secret boat.)
If you're married, you'll have to pull the spender back from the brink. Maybe he or she will agree to use only a debit card, or a low-fee prepaid card, while you work on your debt repayment plan.
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