My Spouse Has Bad Credit – What’s My Exposure?
The decision to get married gives rise to many changes, including various legal obligations and liabilities. I often get questions about what risk each soon-to-be-spouse bears in connection with the other’s bad credit.
Generally speaking, the answer is “not much.”
For one thing, in Ontario the act of getting married to someone with bad credit will not affect the other spouse’s credit score. Rather, each spouse’s credit history remains separate and intact up to the point of marriage, and is not automatically “merged” (nor is there a legal obligation to merge them) afterwards. This means is that one spouse’s pre-marriage indebtedness, defaults, and financial liabilities will not sully the other spouse’s history; nor will prior good credit by one spouse serve to improve the historically bad credit score of the other. Moreover, individual credit scores remain separate after the couple has married.
(As an aside, it should be noted that the decision by a newly-married wife to change her surname to that of her husband will not “erase” any bad credit that she has. Her individual credit score is tied to her Social Insurance Number, not her last name. This means her credit score and credit history – good or bad – will follow her into the marriage).
But individual credit scores may still be negatively affected by what happens after the marriage, as a result of joint decisions made by the new couple. For example, a new spouse may decide after marriage to indirectly assume liability for the other’s existing debts, by jointly taking on a new loan to pay off existing pre-marriage debts. Similarly, any delinquent accounts, overdue credit cards, or other unmet financial obligations that are incurred jointly and expressly shared by spouses after getting married will adversely affect individual credit scores.
And while I mentioned that one spouse’s credit history is not automatically merged, the spouses may deliberately decide to add each other to their existing accounts (for example bank accounts, loans, or credit cards), which means that anything in both spouses’ histories will likely show up together. This is because lenders routinely do credit checks on all joint account holders or debtors; even if only one person uses the account or credit card, the credit histories and scores of both can be obtained. More importantly, as joint debtors each spouse becomes liable for the activities of the other, and each is responsible for making any payments. To put it simply: if the joint account, loan or credit card goes into default, then both spouses will be equally liable.
Finally, the question sometimes arises whether the post-marriage bankruptcy of one spouse will affect the other. Once again, the short answer is “usually not.” Provided that the spouses have kept their individual debts separate post-marriage, one spouse’s decision to declare bankruptcy will usually have no financial effect on the other spouse and his or her credit rating. There are exceptions, however, and it is important to obtain quality legal advice from a lawyer and accountant before deciding to take such a step.