Articles from the Shulman Legal, PLLC Newsletter
I often hear from people, “I don’t need a prenup because I don’t have any assets.” And my answer is, okay, but do you have debt? Among the many benefits of a prenuptial agreement, most people don’t know that having one can help you protect your beloved from your debt, or more defensively, protect you from their debt, both during and after the marriage.
People usually learn the hard way that creditors can still come after them for their ex-spouses’ debts incurred during the marriage, even with a divorce decree that says otherwise. I’ve read complaints from many a divorcee’ receiving collection calls, or even bankruptcy threats years after they thought their divorce was final. How can that be?
In a community property state, such as Arizona, Washington, and California, all debts incurred during the marriage are the responsibility of both spouses, not until divorce, but until the debt is repaid. And even in equity distribution states, both spouses continue responsibility for joint accounts and co-signed loans even after a divorce. Because creditors are not a party to the divorce decree, they can essentially ignore it and continue to hold both spouses liable for debts incurred during the marriage.
So what’s the solution? They say an ounce of prevention is worth a pound of cure, and in this case, a prenuptial, or even a post-nuptial agreement is worth its weight in gold. While creditors can ignore a divorce decree, they cannot go after someone for debt that was never theirs in the first place. And the way to prevent that? A prenuptial or post-nuptial agreement can specifically disclaim certain debts as community before they are incurred. But, and this is the part most people don’t know, the creditor protection is only effective when the agreement is recorded with the county recorder to put creditors on notice.
This is one more reason why it is so important for couples to take control of their finances as a team,
preferably before they marry, by entering into a professionally drafted domestic finance agreement, otherwise known as a prenup.
By talking about their finances and expectations in advance, and working together to create an agreement, couples can opt out of the
inherent uncertainty of state law and the whim of the courts. Instead, they can take control, write their own rules, and
set the foundation early for open communication and cooperative resolution of money conflicts.
After marriage, it’s not uncommon for couples to disagree on spending or investments. One solution for married folks is to enter
into a post-nuptial agreement. Such an agreement can
be very limited and specify a specific debt that only one spouse is to be liable for, such as a personal business venture, or a real
property investment. Or, couples can create a broad agreement similar to a prenup, which delineates joint and separate property,
how expenses are to paid, and what your intentions are if the marriage ends by divorce, or when you die. But remember, in order for
it to be enforceable against creditors, it needs to be in writing, signed, notarized, and then recorded with the county recorder.
If you or someone you know is concerned about spousal debt, at any time before, during or after a marriage, they need to get
professional advice on how to proceed. Shulman Legal offers free consultations and flat fees for their clients in most cases.
For more information call 602-957-2010.
