Patty Mann* lost her husband, Mark, in August 2018 to a rare form of cancer. Mark had been self-employed. With his health in decline during his last year, Patty assumed Mark had been closing down his consulting business. In fact, Mark had indicated everything was “all buttoned up.” However, following Mark’s death, she discovered quite the opposite.
“It’s fairly common for new widows to discover “surprises” while settling their deceased spouse’s estate and attending to the financial complexities of early widowhood,” says Chris Bentley, President of Wings for Widows, a nonprofit that provides financial planning to the newly widowed.
While sorting through files and getting organized a new widow may stumble across memberships, social media accounts and credit cards that were unknown to her. Often these surprises are just that and can be shrugged off. When they are not it can be devastating to the surviving spouse. “On top of the loss of a spouse and often the accompanying loss of income,” Bentley continues, “discovering misdeeds results in the loss of trust, and that’s one loss too many.”
After the funeral Patty learned that Mark had not closed his business. In fact, Mark had run up debt – for what purposes she had no idea – of more than $40,000. She didn’t know about the debt until she discovered Mark had opened a mailbox at the post office. She found the box stuffed with bills, late notices and demands from creditors.
“It was like stepping on a beehive,” says Mann. “My head spun and I felt sick to my stomach. I felt betrayed after 43 years of marriage. I wanted to scream at him, but he wasn’t here anymore. All I could do was cry.”
Mann’s first course of action was to fix the mess. She used a small life insurance benefit to pay off Mark’s debts and close the business once and for all. “Fortunately, I had a term policy at work to pay off his debts. There was nothing left once I paid the funeral costs,” says Mann.
“What she didn’t understand is that she wasn’t responsible for Mark’s business debts,” says Bentley. “Once we began working with Patty we learned that she had used her group term life insurance to pay off the debts that were in Mark’s name. She didn’t create an estate checking account to settle Mark’s estate, which included his business debt. This was a costly mistake.”
As a general rule, no one else is obligated to pay the debt of a person who has died. There are some exceptions, so it is wise to seek the advice of a financial advisor or attorney to be sure. “In most cases you will not be responsible to pay off your deceased spouse’s debts,” according to the Consumer Financial Protection Bureau (CFPB), a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.
In community property states and depending on that state’s law, the surviving spouse may be required to use community property to pay debts of a deceased spouse. The community property states include Alaska (if a special agreement is signed), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
“Credit card debt can be tricky,” says Bentley. “If there is a joint account holder on a credit card, the joint account holder owes the debt. A joint account holder is different from an authorized user. An authorized user is not usually responsible for the amount owed.”
“Don’t be surprised to hear from debt collectors,” he continues. “A debt collector is allowed to contact you in order to locate the person authorized to pay the deceased spouse’s debts. That’s why you create an estate checking account; use this account and this account only to settle those debts.” Although debt collectors can communicate with you about the debt, it is illegal for them to represent that you are responsible for paying the debt with your own assets unless there are specific circumstances that make you legally obligated for the debt, such as if you were a cosigner or joint accountholder.
There may be a concern that if you don’t satisfy the unpaid debt that it will be reported to one of the three credit agencies. “Generally, this is not the case,” says Bentley. “The creditor or debt collector should not report your spouse’s debts to a credit reporting company under your name unless you were a joint account holder, co-signed for the loan, account, or debt, or live in a community property state.” If a debt collector improperly reports your spouse’s debts under your name to a credit reporting company, you should contact the company and dispute the information. You can obtain a free credit report from all three agencies each year by calling (877) 322-8228 or visiting annualcreditreport.com.
“I was just so shocked, I wanted to pay off Mark’s debts immediately,” says Mann. “I wish I had contacted Wings for Widows earlier, before I had made any decisions. I could have used the life insurance money for other things.”
Wings for Widows is based in Minneapolis, Minnesota, and can be reached at 612-466-2716 or at www.wingsforwidows.org.
*Fictitious names were used to protect the identity of Wings for Widows’ clients.