His Debts, Her Debts: Who Pays the Bill?
So you’re in a relationship and it's starting to get serious. You’re thinking about marriage or some other form of long-term commitment.
Quite often today, people are bringing significant debt into relationships with them. Credit card debt. Student loan debt. Auto loan debt.
I often get emails from readers asking me how to deal with them. Should they keep these loans separate from each other? How much debt should they really share?
This was also an issue that could potentially have become a problem when I got married. After some struggles, we eventually came to a conclusion that really makes the reality of these debts quite clear.
First of all, regardless of who actually owns the debts, they are now shared debts. When you’re married, your money effectively becomes a shared pool, whether or not you directly share that money or not. If one of you has a debt, the money to pay for that debt comes out of the shared pool. What’s left in that shared pool is smaller, reducing your opportunities as a couple to build towards other financial goals.
When we were married, for example, I had an auto loan and student loans and my wife had no debt. Luckily, neither of us had credit card debt, but I knew that very shortly we would need to replace her car. Naturally, this meant increasing our debt load and taking on another payment.
At first, we each tried to handle our own debts. What we discovered, though, is that after covering these debts, we each had much less left over to contribute to the things we shared – rent, energy bills, food, and so forth.
Even though we were keeping our debts separate, the reality was that the consequences of those debts were shared. If the consequences are shared, then it follows that the responsibility for paying off the debts ought to be shared as well.
Which brings me to my next point: once you acknowledge the debts as essentially shared, the optimal way to get rid of those debts is to consider them all together. It should no longer matter who has the worst debt. What matters is that the worst debt is the one that you both focus on first.
When my wife and I reached this conclusion in 2008, we began to really work together to focus on all of the debts either one of us had. It didn’t matter whose name was on the credit card or on the car title. The consequences of those debts were shared, so we both benefit when any of those debts go away.
Doing all of this successfully requires complete openness. You can’t hide debts from each other. You can’t hide money from each other. You can’t hide spending splurges from each other.
Whenever you do these things, you are taking money out of that shared pool that helps you both get what you want from the future. You’re also being dishonest with your partner and, likely, you’re undermining your debt repayment plan and other financial plans for the future.
This type of dishonesty is acid to any relationship. It opens the door to other forms of dishonesty that can completey destroy a relationship. I've seen it happen first hand and it's really not a pretty sight.
Any relationship where things are not completely in the sunshine is a relationship that’s eventually asking for problems.
If you’re not comfortable with that openness, then your relationship needs work. This goes beyond mere finances. It’s an indication that there are trust issues in your relationship and as long as those trust issues exist, you’ve got a gigantic fault line in your relationship that can easily erupt into a earthquake.
Simply put, share your debts. Regardless of who brings them to the table, you share the consequences, so you should also share the effort of eliminating them. Working together will also help you to pay them off in a more optimal fashion.
Whether you are bringing the debts to the relationship or just helping pay them off, if you work together to budget, live lean, and focus on your goals you'll find that you can overcome the situation and find yourselves stronger than ever.