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husbands and wives - debts, taxes and responsibility

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I was inspired by Mrs. Micah’s post on whether, in America, husbands and wives are responsible for the other parties debts. It looks like in the States, a married couple is jointly responsibly for each other’s debts if they were acquired (without fraud) after marriage. I figured that the law in the UK would be slightly different, and it is.

In England and Wales liability for debts is independent of a couple’s married or unmarried status. You are no more responsible for your husband’s debts –whenever they occurred – than you are for anybody elses. And of course, the same is true for your wife’s debts.

However, you are both liable for any joint debts. In particular if you take out a debt agreement with joint and several liability then not only are you jointly responsible for the debt, but if one of you disappears then the other is responsible for the whole debt. I suspect that many joint debt agreements are of this form.

Similarly husbands and wives are taxed independently – a fact that you can and should use to your advantage. Each has separate personal tax-free allowances, and separate ISA allowances.

There are some things that change if you get married. Inheritance law makes provision for husbands and wives but not for unmarried partners. Pensions may provide benefits for surviving husbands or wives, but not necessarily for partners. An unmarried couple is also treated differently in adoption law. Some of these differences can be overcome with a little work (e.g. creating a will), and others cannot (pension rights).

An important thing to remember is that there’s no such thing as a common law spouse in England. It doesn’t matter how long you’ve lived with someone, you don’t automatically get any rights.

Note that throughout I’ve referred to husbands and wives. The same rules apply to same sex marriages, which are called civil partnerships in British law. This is not a definitive explanation of the legal positions involved - always do your own research, plonkee money is provided for entertainment purposes only.

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17 comments for “husbands and wives - debts, taxes and responsibility”

  1. This is interesting, regarding the state pension, you would actually get more as an unmarried couple because you would be counted as 2 individuals, is that right? (Up until one of them died I mean).
    That seems a little unfair.
    I wish there was some sort of common-law recognition in the UK, here in Canada you can apply for common-law status after one year of living together, and you are automatically given common-law status when 2 people (of any gender) have lived together for 5 years (in a conjugal relationship).
    We’ve been common-law here for a couple of years, it’s annoying to think that it will mean nothing when we move back.

    Posted by Looby | July 8, 2008, 3:14 pm
  2. Very interesting. I wonder when our two countries diverged on this issue.

    Posted by Aaron Stroud | July 8, 2008, 3:43 pm
  3. @Looby
    Giving recognition to common law partnerships has been mooted several times. I think there’s no general will to change things, and of course the cost of setting it up. I think some political parties have previously opposed on the grounds that it undermines marriage and the family.

    I wonder whether our respective laws on debts and marriage haven’t been the same since married women won the right to their own property in the late 19th century. I know that as late as the 1960s it was extremely difficult for a woman to take out a mortgage.

    The tax thing changed in 1990, and any tax benefit to being married was abolished for most couples in 2000.

    Posted by plonkee | July 8, 2008, 3:53 pm
  4. @plonkee, do you think mortgages were difficult because of lender discrimination or did the lenders have a valid concern that most women couldn’t earn enough to cover a mortgage?

    Re: taxes, at the moment we don’t have a marriage penalty tax on this side of the pond. Unfortunately, the marriage penalty is set to return in a couple of years.

    Posted by Aaron Stroud | July 8, 2008, 3:58 pm
  5. @Aaron:
    It used to be pretty difficult to qualify for a mortgage for anyone, and undoubtedly lots of women wouldn’t have earned enough to qualify (and the same was true for men). But is is widely accepted lenders were unfairly discriminatory to women - there are cases of high earning married women who couldn’t get loans without their husbands name on the application even though the husband was not earning due to mental illness. These were the days when women who got married had to resign from the civil service (central government employment) or university positions.

    Posted by plonkee | July 8, 2008, 7:13 pm
  6. Another reason to be happy to live in England!

    Posted by Frugal Trenches | July 8, 2008, 8:01 pm
  7. There are many, aren’t there ;)

    Apart from the weather :(

    Posted by plonkee | July 8, 2008, 8:30 pm
  8. lol true, but on the weather front we don’t have to deal with scary fires, tornadoes or hurricanes….all of a sudden our weather isn’t so bad :)
    ok you may have to remind me I said that if it rains for the rest of the summer! lol

    Posted by Frugal Trenches | July 8, 2008, 9:48 pm
  9. Another reason to not get married. ;)

    Posted by deepali | July 8, 2008, 10:56 pm
  10. That’s extremely interesting!!!

    So, every credit card and loan would have a provision that specifies whether it’s a joint or a separate debt, right? So if you went out and bought furniture together but charged on, say, his card, then the furniture would belong to him only? The debt would be his, and so the furniture would be his. Five years on, if you separated, he’d get to clean out the apartment, right?

    I think the law differs in different states. Some states are community property states and some are not. In states that go by community property law, you have community debt as well as community property. So just as you own things in common, you also owe in common. If you divorce, each person is entitled to 50% of the property (or of the value of the property) that was acquired after the marriage and any money that was commingled during the marriage…and each person is responsible for 50% of the union’s debt.

    When I escaped, we owed 3/4 of a million bucks. My husband assumed all the debt (since he ran most of it up). However, I discovered that under the law EVEN THOUGH the divorce decree specifically said he would pay off the debt and I was not responsible for it, the judge’s decision was not valid. Had he defaulted, I would have had to pay it.

    To keep him out of bankruptcy, I had to borrow on margin against every liquid penny I owned. This worked, and eventually he dug out of the hole and paid me back. But it was an interesting time.

    Posted by Funny about Money | July 9, 2008, 12:05 am
  11. Interesting…maybe I should move across the pond! I might have a better chance of my wife not caring so much about “my” own debt.

    It’s amazing (and a little scary) at how much finances impact a relationship. I’ve heard stats that the number 1 reason for divorce is over financial issues. Very scary.

    Posted by DebtKid | July 9, 2008, 12:11 am
  12. @Funny about Money:
    In a divorce, all bets are off. I think that if you bought furniture together on his card then I think only he would legally owe the debt. It might be assumed that he also owned the furniture, but not necessarily it would depend on what was considered fair. I know that there are plenty of bankrupt cases where one party is declared bankrupt and this has no impact on the spouse’s credit score, let alone finances.

    Posted by plonkee | July 9, 2008, 8:15 am
  13. Sounds like a sensible way of doing things. My to-do list still includes researching if student loans are treated differently.

    Posted by Mrs. Micah | July 9, 2008, 10:10 pm
  14. That is so sane. Here, the couple declares bankruptcy and both people’s credit is wrecked. And if they’re not getting along, the potential for mischief is huge.

    One of the daughter-in-sins, who well into her 40s is amazingly obtuse about money, imagined her about-to-be-ex husband had filed their income taxes jointly. Amazingly, it never occurred to her that if she hadn’t signed a tax return he either hadn’t done one or he’d filed separately. And yea verily, he had indeed filed separately. Meanwhile, because she’s a nurse and paid on contract, he persuaded her to opt not to have taxes withheld but to pay on a self-employed basis. So no one ever sent her taxes in.

    Two years went by before she figured this out. To this day, she still hasn’t paid her taxes…apparently too paralyzed with fear to move. Oh well. She’ll enjoy Leavenworth.

    This pair also declared bankruptcy to get out from under credit-card debt. Cleverly they timed it just as the bankruptcy laws were changed at the behest of the credit industry’s lobbyists. So they lost their home as well as everything else. He’s a scion of a very wealthy family; his inheritance (millions of dollars worth) is held in trust. She’s flat broke and paying HIM child support (though the kids are in her custody).

    Sanity does not appear to be part of the American tradition. ;-)

    Posted by Funny about Money | July 10, 2008, 2:40 am
  15. @ DebtKid, it’s not finances themselves that are the cause of divorce, but lack of communication/compromise about finances.

    Posted by deepali | July 11, 2008, 7:36 pm
  16. I have not thought about this issue (and hope to never have to).

    I wouldn’t consider not paying off any of my wife’s debts if it ever came to that. (being able may be another issue).

    We have a couple of jointly owned properties where the loan is under my name. We also have loans with MRTAs where one of us is the insured.

    I suppose like FaM said, “potential for mischief” may be great, only if we don’t get along.

    Posted by fathersez | July 14, 2008, 9:06 am

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