If you’re like most people, you dislike contemplating your own death. So many people find the thought of dying morbid, that’s why it’s common for people to avoid visiting with an estate planning attorney and they end up dying without a will.
You may not like thinking about dying, but have you ever thought about what will happen to your debt when you die? Will your spouse have to pay your student loans, your medical bills, and your credit cards after you die? According to Northwestern Mutual, the average U.S. adult has $29,800 in personal debt, not including their mortgage. That’s a lot of debt to saddle with loved ones!
Will all of your financial problems die with you, or could your husband or wife inherit your debt? The answer depends on whether the debt is held jointly or in your name alone, and if you live in an equitable distribution state, like Pennsylvania, or if you live in a community property state, which makes spouses responsible for each other’s debts.
Debt & Insolvent Estates
For the purposes of this article, we’re going to assume you have an insolvent estate, meaning, your debts exceed your assets. If you had a solvent estate, during the probate process, all of your debts would be paid off and then whatever was leftover would be distributed among your heirs or beneficiaries.
But when you have more debt than assets, your estate is deemed to be insolvent. If you were to pass away, certain debts could survive you if they are held jointly with your spouse. For example, if you and your spouse are both on an auto loan, a mortgage, or on credit cards, then your spouse would be on the hook for those debts after you die.
On the other hand, if you have debts that are in your name only, such as medical bills, credit cards, etc., those debts would not pass on to your spouse because Pennsylvania is an equitable distribution state. Under Pennsylvania law, people are responsible for the debts incurred in their name alone. This law is advantageous, and the best way for spouses to avoid being on the hook for each other’s debts after death is to avoid cosigning at all costs.
In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), spouses are equally responsible for all debts incurred during the marriage, even if they didn’t agree to it. If you live in Pennsylvania, however, any debts in your name only would not pass on to your spouse upon death.