In a state that follows "common-law," or "equitable distribution" rules, debts incurred by one spouse are that spouse's debts alone, and income earned by one spouse does not automatically become jointly owned.
There are 41 states that follow common-law property rules in 2021, plus the District of Columbia: Alabama, Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia, and Wyoming.
In a common-law state, debts are owed by both spouses only if the debt benefits the marriage (for example, the debt was for food, clothing, childcare, shelter, or necessary household items) or the debt was jointly undertaken—for example, if both spouses signed a contract requiring them to make payments on the debt, if both spouses' names were on an account or title to property, or if a creditor considered both spouse's credit information before making the sale or loan. The same rules hold true after permanent separation but before divorce.
All other debts, such as a business debt from one spouse's business or a car loan for a car whose title is in one spouse's name, are considered a spouse's separate debts.
Generally, in most common-law states, income earned by one spouse during the marriage belongs to that spouse alone, if it is kept separate. And any property bought with separate income or funds during the marriage is also separate property (unless the title to the property is put under both spouses' names). In addition, gifts and inheritances received by one spouse, as well as property owned by one spouse before marriage (and kept separate), are the separate property of that spouse (as long as they are kept separate).
However, if income earned by one spouse is put into a joint bank account, that income or property becomes joint property. If joint funds are used to buy property, the property is also owned jointly(unless the title is taken in the name of one spouse only). Jointly owned property can include equity in a jointly owned house, household goods, jointly owned vehicles, and jointly owned bank accounts, retirement plans, and stocks or mutual funds.
As you may have guessed, for property that has a title document, such as real estate and vehicles, whose name is on the title indicates who owns the property in common-law property states. For instance, if a car is in only one spouse's name, it's considered that spouse's separate property. If a house is in both spouses' names, the house is joint property, even if one spouse doesn't contribute anything toward the mortgage payments.
In a common-law property state, creditors of one spouse can go after the income or property of the other spouse—or joint property—only if the debt was incurred for joint purchases or for purchases that were made for family necessities. In some common-law states, a creditor can also go after joint property to pay the separate debts of one spouse (even if the debt was not family-related), but in most states a creditor can take only half of the money in a joint account.
In about half of the common-law property states, a creditor cannot go after certain joint property to pay the separate debts of one spouse: If a couple holds property in "tenancy by the entirety," a creditor can go after the property to pay only joint debts, not separate debts of either spouse. And in some states, such as Florida, most joint property is automatically considered to be held in tenancy by the entirety and so is immune from being taken to pay one spouse's separate debt.
For further information on whether a creditor can go after your joint property to pay the separate debts of one spouse, talk to a debt collection or bankruptcy lawyer in your state.
As to a spouse's separate property, creditors of one spouse cannot legally reach the other spouse's separate money, property, or wages to repay the first spouse's separate debt.
It follows that if you live in a common-law state and you own a business that your spouse is not involved with, you don't want your spouse to personally guarantee any of your business debts. Unless your spouse cosigns a loan or personal guarantee, your spouse won't be liable for your business debts—if you keep your money and property separate.
In a common-law property state, if only one spouse files for Chapter 7 bankruptcy, only that's spouse's joint and separate debts would be discharged; the other spouse's separate debts would not be discharged.
For more information on sorting out personal debt and marital property, see Solve Your Money Troubles: Debt, Credit and Bankruptcyr (Nolo).
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