For better or worse, in wealth or poverty – when you exchanged those vows with your spouse at the altar, you probably weren’t thinking about your new partner’s credit scores, savings accounts, or income level—indebtedness.
Before you put the ring on her finger, maybe you were lucky enough to be debt-free and on the right track financially. But now the situation has changed. You also married his debts. So your loved one’s credit card, student loan, or car loan are also yours. But is this the case?
That’s a legitimate concern when you consider that more than four in ten Canadian marriages start in the red, according to a 2014 Harris/Decima poll on love, marriage, and debt. On average, newlyweds start their life together with $21,500 in debt, which can be challenging to manage if they want to create a family or buy their first home. However, the most worrying aspect is the lack of communication: more than one in three people indicated that they had never discussed their debts with their spouse before marrying them.
When newlyweds have different buying habits and credit histories, it can be brutal or misguided to consolidate finances. Marriage can be a team effort, but sometimes you need to take action to protect your good credit rating. By communicating, having a better idea of your options, and knowing your respective risks and debts, you and your spouse can be on the right path to finding financial happiness.
talk about money
Announcing your credit score mid-conversation probably won’t guarantee you a second date, but it might help you determine your financial compatibility. According to personal finance and investment blogger Mark Seed, most couples should talk about money before getting married. “It would be difficult for a couple to have a successful long-term marriage without both spouses being on the same page regarding money,” he says.
Money problems are generally considered one of the leading causes of divorce. Thus, having a good idea of your respective financial situations before you get married could save you a lot of headaches and reach an agreement for budget planning and the establishment of your objectives. For Mr. Seed, such a discussion does not have to be painful and can be boiled down to a simple question: are you more of a thrifty person or a spendthrift person?
Put the cards on the table.
Discuss your credit history and scores before considering joint debt. You can request a copy of your credit report from Equifax Canada and TransUnion Canada. Look for factors that determine a credit score, such as bill payment history (including missed or late payments), high credit card balances, and bankruptcies. Be sure to check your record at least once a year and have any errors corrected.
Know when you are responsible for your spouse’s debts
Many couples assume that they become responsible for their spouse’s pre-existing debts. Fortunately, your spouse’s credit history has no bearing on your credit profile, according to Brian Pritchard, Bankruptcy Administrator for BDO Canada, Business Recovery Services. “Even if the debt is incurred by one of the spouses after the marriage, it does not automatically make the other responsible unless he guarantees the debt or co-signs the contract,” says Pritchard.
Both credit files will be effected only when you jointly apply for credit, co-sign a contract or add your spouse as an authorized user of your card or line of credit. For example, your spouse’s bad credit history could harm your mortgage rate when you want to buy a house together.
