Successful marriages usually start with one big premise: communication. That shouldn’t change when it comes to how to handle money in a marriage but does that mean you have to combine everything? I’m not a marriage counsellor but I am an insolvency counsellor and I do see the implications when married couples don’t manage their money well. Worse, I see the implications of what can happen to your finances when a marriage doesn’t last. Given that, I can tell you what happens if your debts, and assets, are combined, and you do start to experience financial problems.
If a couple have both signed on the dotted line for their debts (called joint debts) then their creditors will legally be able to pursue either party. If only one person declares bankruptcy, the creditor will still try to collect from the other spouse.
The same holds true if you divorce. If you both owed the debt while you were married, you both owe the debt after the divorce. No separation agreement or divorce can contractually hand over sole responsibility for paying back a debt to one party. Unless your lender agrees, in writing, you are both still liable.
Assuming you don’t need to file for bankruptcy, what happens if one spouse or the other owes a lot of money? You should, in my opinion, manage that debt together. Creating a family budget to deal with the debt is your most likely way out, short of having to see someone like me.
If only one spouse owes a lot of money, I would recommend talking to a bankruptcy trustee before the other spouse agrees to co-sign on any old debt. There may be a better way out that using up both person’s assets and credit.
Whether you should own assets jointly or separately is a big question. There are emotional considerations. Do you feel more like a team if you have a combined bank account or would you feel better having some independence by maintaining a “his, hers & ours” type of arrangement? These are questions answered best by talking it through. However the final decision should also be based on legal and economic factors.
Some assets, like an RRSP, must be owned by a single person. A “joint” RRSP does not exist, so they can’t be combined (although one spouse can contribute to their spouse’s RRSP).
The most common example of a jointly held asset would be a house. In many cases a bank will only grant a mortgage to the owners of the house. Depending upon each partner’s credit potential it may be necessary for both spouses to be both owners of the house and guarantors of the mortgage.
If you have debt, a more important consideration may be “who has the debt?” Where possible, it may be prudent to structure your affairs so that the spouse with the assets is different than the spouse with the debts. If the husband has tax debt and owes money on credit cards it would be safer for the family if the wife was the sole owner of the house. If the wife has not guaranteed her husband’s debts, their marital home is now protected from seizure.
These types of restructuring arrangements need to be made early. Always discuss these types of arrangements with a lawyer, accountant or bankruptcy trustee first. Arrangements made just to avoid pre-existing debts may be challenged by your creditors and can be seen to be fraudulent depending upon the circumstances.
Whether or not you combine your assets or debts is only an issue when problems arise, so if you are experiencing problems, get expert advice to help you evaluate your options.