Q. I’m getting married this summer. My finances have always been solid. My fiancée, though, declared bankruptcy four years ago. She seems to be on track, I think, but I’m not sure how her money will impact mine when we do marry? What do I need to know?
A. Congratulations on your marriage, and for wanting to understand more about how merging your money will impact your credit.
We’re assuming your fiancée filed a Chapter 7 bankruptcy and received a discharge.
“If your fiancée had any secured debt — mortgages, car loans, etc. — the receipt of a discharge would alleviate her of any personal obligation to pay the underlying debt,” said Ilissa Churgin Hook, an attorney with Hook & Fatovich in Wayne, NJ. “However, the secured creditor still maintains its lien on property and can still foreclose/repossess its collateral if the debt is not paid in the future.”
Moreover, Hook said, certain debts, such as student loans, domestic support obligations and certain tax debts, are generally not dischargeable.
Hook said the bankruptcy filing can remain on your fiancée’s credit report for seven to 10 years. Therefore, although she may be able to obtain credit, she most likely will pay a higher interest rate than someone with a higher credit score who does not have the blemish of a bankruptcy filing on their credit report.
“This may be a consideration if you are thinking of buying a home and taking out a mortgage together,” she said.
Keep in mind that your fiancée’s Chapter 7 only discharged certain debts that existed on the date she filed her bankruptcy petition, not any debts incurred after that date, Hook said.
Communication Is Key
“If you are concerned regarding your fiancée’s current financial status, you should have an honest conversation with her regarding the nature and amount of your respective assets and liabilities,” Hook said. “Further, if you have concerns regarding your fiancée’s spending habits, you may want to consider having separate bank accounts and depositing your paychecks into individual — rather than joint — bank accounts.”
This would provide you with an extra layer of protection if a creditor obtains a judgment against your fiancée — or wife, after you are married). A creditor would not be able to easily attach a bank account or other assets that your fiancée’s/wife’s name is not on.
“If you decide to commingle your money into joint accounts, a creditor would be able to seize at least one-half — her share — of a jointly owned account,” Hook said. “Further, some banks will freeze twice the amount of any judgment amount if available in the bank account until the matter is resolved.”
Until your soon-to-be wife’s credit history is repaired, it may be wise to keep your finances separate, said Lisa McKnight, a certified financial planner with Lassus Wherley in New Providence.
She recommends your fiancée build her credit post-bankruptcy with a secured credit card (here are some of the best secured credit card options) that is paid off every month.
“These credit cards use your savings account as collateral for the credit limit and are easier to get approved,” McKnight said. “You could also consider adding her on as an authorized user on a card you currently have.”
As time goes on, McKnight said, it’s important to review your credit reports annually and to make sure that any items listed on her reports marked as “included in BK” are removed when the seven- or 10-year period has passed. It is also important to understand the root of the problem because filing for bankruptcy may indicate some serious financial missteps.
McKnight said couples considering marriage should have frank discussions about individual financial management styles and financial goals and objectives. She said you should discuss how you both feel about saving and spending and your money styles, such as if one of you is a saver and the other, a spender.
“Most couples are not shy discussing sex, religion, and other sensitive topics, but when it comes to money, may be uncomfortable bringing it up,” she said. “We live in a culture where most of us have been taught not to reveal our salaries or net worth. How much we make or owe is one of our deepest secrets. Getting past that silence is important when you are combining two households since money continues to be a leading factor in American divorces.”
McKnight said before the marriage, you should get copies of all your credit reports, financial documents, bills and the bankruptcy papers and go over them carefully. It is critical that all cards are on the table, and that you speak openly and frankly about important financial issues.
“Put a plan together to address any issues and existing debt,” McKnight said. “If she filed Chapter 13 and the court has mandated a repayment plan, you will need to work together to pay off this debt. Make sure that in planning your wedding you are not adding more debt to your debt load!”
A Pre-Marriage Checklist
McKnight offered this to-do list before you walk down the aisle:
- List your goals: Do you want to own a home, have one or more children? What is important to the two of you? Write it down so you keep it in front of you.
- Talk frankly about money values — that means no secrets. Sit down and discuss your family’s attitude toward money. Did you grow up poor or affluent? How did your parents handle money? This can be a touchy conversation, but it can also be liberating and create a habit of communication.
- If possible, clean up debt before you exchange vows.
- Figure out what each partner’s role will be. The person who is more detail-oriented might do the budgeting, account maintenance and check writing. The one who’s more interested in investments can track your portfolio, do research and make recommendations. It is important to make sure that you both understand your overall financial situation.
- Use a bookkeeping program like Quicken or MS Money to keep you on track. The planning features help you think rationally about money and can often clarify financial issues.
- Seek professional advice. Objective outside help can ease the stress surrounding money issues.
- Talk monthly about where you are financially.
More on Credit Reports & Credit Scores:
- What’s a Good Credit Score?
- How to Get Your Free Annual Credit Report
- How Credit Impacts Your Day-to-Day Life
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