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Personal Finance

How to Deal With Debt After a Spouse’s Death

When your husband or wife passes away, you must consider many financial issues, all of which present some challenges especially when you’re grieving and adjusting to a new life.

To navigate the process quickly, you can determine which debts you are responsible for and which debts are forgiven when your spouse dies. Here, in detail, is what you need to know about how to deal with debt after a spouse’s death.

General Rules for a Deceased Spouse’s Debts

The majority of debts owed by a spouse who passes away do not become the responsibility of the surviving spouse, according to the Consumer Financial Protection Bureau.

This is because, generally speaking, debt is forgiven when the owners dies. However, there are specific circumstances in which debt becomes the responsibility of the living spouse:

  • If a spouse is a co-signer on a debt
  • If a spouse is a joint owner on a debt (Authorized users are exempt)
  • If the state in which the couple lives has laws that require a spouse to pay a specific debt
  • If the state in which the couple lives has laws regarding the executor or administrator of the passed spouse’s estate to pay debts on joint property

Knowing what your state requires is crucial because estate laws are specific to each state.

In community property states, the surviving spouse may be responsible for paying debts of the deceased spouse out of the estate assets that are considered community property. This type of property may include anything that was acquired during a marriage with the help of credit that was paid for with joint assets.

For example, if you had a joint checking account with your spouse and this account was used to pay a credit card bill, you may still be responsible for any outstanding balance on that card when your spouse passes away. Community property states include Arizona, Alaska, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Specific Debt Situations

While it’s important to understand the general rules and exceptions mentioned above, you should also evaluate your specific debt situation.

The majority of states do not require a spouse to take responsibility of a spouse’s debt after his or her passing, according to Steve Bucci, author and founder of a consumer credit counseling service. However, in community property states, creditors have certain recourses in specific situations as it relates to collecting on a deceased person’s debts.

These rules may have an impact on a surviving spouse and the estate assets of a deceased individual when it comes to mortgage loans, credit card debt, student and auto loans, and IRS obligations. The following information provides general guidance on each type of debt so that you can better understand what debt you are responsible for – and what you are not.

Credit Card Debt

In specific instances, you as a surviving spouse are responsible for repaying credit card debt owed by your deceased spouse. When credit cards are owned jointly, the spouse who is the joint owner assumes the debt upon the death of the spouse. However, you’re not responsible for repaying credit card debt if you are simply an authorized user.

In community property states, debts incurred during the marriage, including credit card debt, even when owned individually, become the responsibility of the surviving spouse upon the death of the owner.

It is essential to be proactive when a spouse dies and inform credit card companies of their passing. This will prevent the creditor from contacting you about missed payments or balances owed. However, the debt may still become your responsibility.

Mortgage Debt

Married couples often have mortgage debt held jointly. When this is the case, and a spouse passes away, the surviving spouse assumes the mortgage debt as their own.

If a mortgage is only titled, not financed, in both spouses’ names, the remaining balance on a mortgage also becomes yours when your spouse dies. While this is often the largest responsibility from a financial perspective, lenders cannot demand the full balance owed on the mortgage after a spouse’s death. Instead, a spouse can assume the mortgage individually, refinance into their own name, or continue to make payments as agreed each month to keep the mortgage current.

Student Loans

In most cases, student loan debt is eliminated when the borrower passes away. This means there is no obligation for a surviving spouse to repay student loan debt when their spouse passes away.

However, as with other debts, student loan debt may become the surviving spouse’s responsibility if they live in a community property state and the student loan was taken out during the marriage. A surviving spouse is also responsible for repaying the student loan if they were listed as a co-signer on a refinanced or private student loan. The Department of Education states that federal student loans are safe from repayment liability in nearly all cases, meaning surviving spouses do not assume the debt.

Auto Loans

Similar to other debts, auto loans are only assumed by the surviving spouse when the vehicle was financed jointly or if they live in a community property state. The vehicle must have been acquired and financed during the course of the marriage for the debt to fall on the shoulders of the surviving spouse. It may be possible to refinance an auto loan after the death of a spouse to ensure payments are affordable. Or the vehicle can be sold to pay off the remaining loan balance.

IRS Debt

Paying taxes after a spouse passes away is inevitable, as a tax return must be filed to account for income and other taxes owed during the year of his or her death. However, there are other situations where tax debts can become the responsibility of the surviving spouse.

For instance, if a deceased spouse owed back taxes that were incurred during the marriage and the couple lived in a community property state, the tax debt must be paid by the surviving spouse. If the tax debt was incurred before the marriage, the debt might still be owed by the estate of the deceased spouse, but it does not become the responsibility of the surviving spouse.

Bottom Line

When a spouse passes away, the last thing a husband or wife wants to fret about is the financial affairs of their partner. However, understanding what debts ultimately become the responsibility of the surviving spouse is crucial to maintaining financial order.

It is most important to recognize if community property laws impact you and your passed spouse, and which debts are payable to creditors after their passing. Be sure to take proactive steps in contacting creditors to determine current balances and to learn the process for repayment if the debt become yours.