When your dead spouse’s debt is your debt

Q: My father passed away recently leaving about $20,000 in credit card debts. We had no idea that he was having trouble paying his bills and the extent to which he was borrowing.  Now we are worried about what impact this will have on my mother’s finances. Can the creditors demand payment from her?

—Sonya

A: Unfortunately, this is a family scenario that happens far too regularly. Seniors often keep their financial matters to themselves, often even from their spouses. The Boomer generation grew up in different times. They worked hard and spent only what they saved. That generation had three taboo subjects: money, sex, and religion (not necessarily in that order).

The trouble with debt is that both silence and time work against it. The longer you leave the debt sitting without being properly dealt with, the worse it usually gets. If you have money problems that you keep hidden, it only hurts you.

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Today seniors are the fastest growing group of Canadians finding themselves deep in credit card debt. Reasons we see?  For some, their credit card debt was incurred prior to retirement. Debts are hard enough to repay when working, but even more so in retirement as your income drops. However, we also see many seniors growing credit card debt after retirement. Fixed income and turning to credit cards to make ends meet? You bet it happens. Sometimes seniors find it difficult to cut back on spending post-retirement. Saying no to a loved one is hard if you’ve been the sole income earner in the past and it’s not unusual for the family not to realize what is happening until after the debts accumulate.

How this will affect your mother’s finances depends on whether she is legally considered a co-borrower for this credit card debt. To understand this, we need to look at two issues: whether debts survive death and whether a debt is considered joint debt.

First, if someone dies, responsibility does not automatically fall to the survivors. In Canada, debts cannot be inherited and cannot be transferred upon the death of a spouse.

It is also important to know that no-one is legally responsible for their spouse’s debts just because they are married. Your mother is only legally liable for your father’s debts if she co-signed the loan or guaranteed payment. Legally this is known as joint debt.  This becomes more complicated for credit cards if a supplementary credit card is involved. If your mother had a supplementary credit card with your father, which is common among spouses, you will need to review the terms and conditions of the credit card agreement. Some credit card companies hold the secondary cardholder only liable for charges they incurred. Others consider the entire balance to be ‘joint and several’ (i.e., both parties 100% liable).

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If the credit cards were your father’s alone, and your mother did not sign any agreement or guarantee and she is not a supplementary cardholder, then the credit card companies cannot pursue her for payment. These debts will, however, be a debt of your father’s estate and will be paid before any funds are transferred to the estate beneficiaries via the will.

If your mother is a co-borrower on these debts, and the estate does not have enough assets to repay the debts, then the lender will look to your mother for payment. If she cannot pay, she may need to talk with a Licensed Insolvency Trustee about her debt relief options.

This scenario illustrates the importance of seniors talking openly about their finances. This problem could have been handled much easier if known much earlier. A death often takes the matter out of the hands of those involved.

Scott Terrio is Manager, Consumer Insolvency at Hoyes Michalos & Associates Inc., Licensed Insolvency Trustees at Hoyes.com. Follow him on Twitter @ScottTerrioHMA

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