Here’s a question about marriage and money that I recently received:
I have a question about marrying someone who will go through bankruptcy BEFORE marriage. Other than having difficulty with getting a loan, what other effects should I expect in the future?
The bankruptcy had to do with a prior divorce, and ownership of more properties than one should own at any one time, so I’m not worried about his spending habits. What do you think?
This is a great question, and needs to be addressed from two different angles.
Potential Credit Affects
There’s one major myth about a spouse’s bad credit history: that it affects your score. It doesn’t. Your credit score is completely separate from your potential future spouse’s.
So why does this myth refuse to die? Probably because spouses that choose to share finances completely often have overlapping credit reports. If you’re both on the mortgage, the credit cards, and the car loans, those will all show up on both of your credit reports. So unless one spouse also maintains personal lines of credit, the scores may mirror one another.
But your scores aren’t automatically linked just because you’re married. And you can keep your finances largely separate on an everyday level, as well.
Sharing Credit Could be Problematic
It’s pretty easy to keep your checking and savings accounts, retirement accounts, credit cards, and even car loans completely separate from your spouse’s. In fact, many couples take this route, especially if they come into the marriage with widely different income levels, assets, or money management styles.
Still, even couples who keep their finances mostly separate may want to get a mortgage together. When you apply for a mortgage together, you can often qualify for a bigger loan, since both incomes count. But in this case, it may be better to apply for a mortgage on your own. You’ll get a better interest rate than if you add your fiance’s bad credit to the mix.
Other Problems with Sharing Assets
Maybe having to apply for a mortgage on your own isn’t a deal breaker. But here are some other situations where it may be better to keep your assets largely separate:
- Let’s say he ends up with a tax lien from the bankruptcy. You file a joint return. In this case, the IRS will get its money before you get your tax return.
- What about paying student loans or government loans affected by the bankruptcy? In this case, your assets could be at risk if you mingle them with your spouse’s. This could be especially dangerous if you’re in a “community property” state like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin.
- Let’s say you own the home, but you use common funds to pay property expenses. Your husband deposits money into a joint checking account to help pay for these expenses. In this case, your commingled property could be considered partially his. In this case, his creditors could come after your property.
How to Protect Yourself
This isn’t to say that you should break off an otherwise great relationship. But you should take steps to protect yourself.
Probably the best way to do this is to wait to tie the knot until his bankruptcy judgment is final. Then, you’ll know exactly what you’re getting into.
If your soon-to-be-groom goes with a Chapter 13 bankruptcy, his debts won’t be discharged. He’ll still be paying them up after the bankruptcy is final. And even if he qualifies for Chapter 7, not all his debts are likely to be discharged. But once the judgment is final, you’ll know which debts he’ll still be dealing with. And you’ll know how those debts are likely to affect his take-home pay and ability to contribute to your household.
If you’re already living together, you should go ahead and consult and attorney now to determine if it’s possible to commingle your property while keeping you out of his financial mess. And if he still has significant debt post-bankruptcy, having this conversation with a lawyer is worth your while.
The Bigger Conversation to Have
Here’s another thing to think about: financial boundaries moving forward.
While some people file bankruptcy for reasons beyond their control, it doesn’t sound like that’s the case here. It sounds like your fiance has made some serious financial errors in the past. He likely overextended himself to purchase too many properties. And he failed to plan for the future.
This may not be a deal breaker, either. Especially if you think he’s learned his lesson. But you should be careful about letting him get involved in your finances until he’s proven himself.
Consider keeping your finances almost completely separate for a few years. Once he has rebuilt his credit and made consistently good choices, you can consider going the joint finances route if that’s your preference. In the meantime, you should hold the reins on most of the major financial decisions for your family.
Also, make sure you’re in the loop on the bankruptcy process. You should know exactly what steps your fiance is taking to complete the bankruptcy process. And you should get to see the paperwork afterwards with the record of his current debts and payment plans. This will help ensure you know exactly what’s going on with your fiance’s financial life before you decide to tie the knot.
What advice would you give this person?
If you were in her shoes, what would you do? Would you consider marrying someone who is going through extreme financial difficulties, up to and including bankruptcy?