We have written a fair amount about prenuptial agreements including a lengthy piece last October concerning difficult issues that young couples can face but rarely ever discuss. Some recent litigation we have been managing prompts mention of a subject, which probably should be in a premarital agreement in almost every marriage. In fact, we should probably all have these agreements.
The subject? Debt. Americans love it. The average household owes $184,000 on the mortgage and $28,000 on the cars in the driveway. The new and growing issue is student loans. They exceeded $1.25 trillion in 2018. The average household with these loans owes almost $48,000. Then there is the “dirty” debt of credit cards. It’s a relatively small $420 billion but about $7,000 per household. What makes it dirty are the interest rates and fees associated with this debt. The average rate on this debt appears to be just over 16%.
So what does this have to do with premarital agreements? If you marry and buy a house, chances are good you know it. Same with the family cars. If your spouse is taking on consumer debt, the danger is more difficult to see. Perhaps it is for a hobby, season tickets for hockey, or clothing. You may see that stuff coming into the house, but you don’t necessarily know how it is paid for. It is not common, but there are couples out there that owe $50,000 or more in revolving (i.e. credit card) debt. In many cases, half the couple has no idea.
As an equitable distribution state, when divorce occurs, we divide the assets and the liabilities. What about the liabilities your spouse incurred during the marriage but didn’t disclose to you while they were accruing. Divorce is painful enough without learning at the end that your loved one racked up $30,000 in debt, which you never heard about until the divorce was filed. And, then you are being asked to “share the pain?” You thought that the trip last year to London to watch the Eagles take on the Jags was paid by his parents. Wrong.
Don’t let the shame be on you. You should have an agreement that says, “We are each individually responsible for debt incurred during the marriage without contribution from the other spouse unless: (a) the debt was joint; or, (b) there is a signed document saying we are treating it as joint.” We all have bad habits, but because they are our bad habits, we should take responsibility for them and do so without asking for a contribution to underwrite our bad habits.
Bear in mind as well that if you establish a home equity line of credit, most lenders do not insist that the borrow be “joint” or for a lofty purpose. Meanwhile the note and associated mortgage say whatever is drawn is a joint obligation without regard to how the borrowed money was employed.
Collectively, and without help from our much indebted federal, state and local governments, Americans personally owe $13.5 trillion. That’s $135,700* per household. Marital debt is any debt incurred during the marriage. If you are going to be allocated some or all of that debt, shouldn’t you have a right to know about it before it is incurred? Get that in writing.
*The reader may note this value is less than the mortgage debt referenced above. That’s because some Americans actually don’t own houses or have actually paid them off.