The loss of a spouse is already difficult to bear, and having to worry about their debts on top of that can feel like adding insult to injury. When someone passes away still owing credit card debt, loans, or other financial obligations, how much responsibility does the surviving spouse have to bear?
In principle, a person is not obligated to take on the debts of their deceased spouse, but there are exceptions to this rule. Therefore, understanding one’s own circumstances and rights becomes crucial.
According to the regulations of the Federal Trade Commission (FTC), in general, a person is not required to assume responsibility for the debts of a deceased spouse. However, this does not mean that the debts simply vanish.
Creditors can still attempt to collect the debts from the money or property left behind by the deceased individual. In other words, the estate of the deceased person will be used to settle the debts.
If the deceased individual left a will, the designated executor of the will is responsible for using the estate to repay the debts. Conversely, if there is no will, a probate judge will determine how the estate should be distributed and appoint an estate administrator to carry out those decisions.
However, in certain circumstances, the surviving spouse of the deceased may be held responsible for the debts left behind.
Debts do not disappear upon the death of a spouse, and at times, the surviving spouse may need to take on the responsibility of repaying those debts.
If a loan was co-signed, such as an auto loan or a mortgage, the surviving spouse will be responsible for repaying the entire loan. If the loan was not jointly signed, then there is no obligation.
Certain state laws may require an individual to repay the debts of a deceased spouse.
In community property states, the surviving spouse is also responsible for the debts left behind by the deceased spouse. In these states, debts incurred during the marriage are considered shared debts, regardless of whose name is on the account. According to information from the Internal Revenue Service (IRS), community property states include:
Arizona;
California;
Idaho;
Louisiana;
Nevada;
New Mexico;
Texas;
Washington;
Wisconsin.
In California, Nevada, and Washington, domestic partners are also required to operate under community property laws.
Some states allow individuals to opt into community property agreements or designate specific assets as community property. These states include Alaska, Florida, Kentucky, Tennessee, and South Dakota, among others.
Is the surviving spouse responsible for the medical debts of the deceased spouse? Many states have a Doctrine of Necessaries law, which dictates that a spouse is responsible for covering necessary expenses, including medical costs. This law is based on common law, which holds that spouses are responsible for each other.
Slovin & Council, a law firm based in Ohio, explains that the Doctrine of Necessaries was initially created for husbands to pay for their wives’ essential expenses, not vice versa. However, most states have since modified this law to apply to either situation.
If a credit card was jointly held with the deceased spouse, the surviving spouse is responsible for repaying the credit card debt. However, what if the surviving spouse was only an authorized user? According to the Consumer Financial Protection Bureau (CFPB), if the individual was solely an authorized user on the deceased spouse’s credit card, there is generally no obligation to repay the credit card debt.
The debts of a deceased spouse do not vanish; the estate of the deceased spouse remains liable for these debts after their passing.
If the individual is not deemed legally responsible, the inherited assets and cash will be used to repay the debts. Repayment is conducted according to the priority order specified by state law.
It is important to remember that if creditors collect from the estate, the beneficiaries’ inheritance will be correspondingly reduced.
State laws typically determine which assets are exempt from debt collection. However, laws vary among states, so consulting with an estate planning attorney is vital in specific situations.
Generally, according to information provided by Cummings & Lockwood, a law firm based in Connecticut, assets in the following categories are usually protected from creditors’ claims:
Retirement plan assets, such as IRAs, Roth IRAs, 401(k)s, and others;
Life insurance with named beneficiaries;
529 education savings plans;
Annuities.
It is crucial to note that all these assets must have designated beneficiaries; otherwise, they may be considered part of the deceased individual’s estate.
Certain creditors may need to write off debts and cease further collection efforts. If taxable funds in the deceased spouse’s estate are depleted, barring any other exceptions, creditors may incur losses.
If debt collectors use inappropriate, unfair, or deceptive means in debt collection attempts, family members should be protected.
The Fair Debt Collection Practices Act (FDCPA) only permits collectors to discuss debts with the spouse, lawyers, or the executor of the will. They can also communicate with confirmed heirs of interest. This includes newly confirmed owners of real estate of the deceased individual by mortgage servicers.
If the debt is not in the individual’s name, they may not be held accountable for the deceased spouse’s debts. Funds to repay the debts would come from the estate of the deceased spouse.
However, if the individual co-signed loans, credit cards, etc., they would be liable for the entire debt. Spouses living in community property states are also responsible for the debts of the deceased spouse.
Remember, the debts of a deceased spouse do not vanish automatically; the estate remains responsible for settling these debts after the spouse passes away.