Many people worry about what will happen to their debts after they pass away, often fearing that their loved ones will be burdened with the responsibility of repaying them.
The death of a spouse is an incredibly emotional and challenging time. Amidst the grief, many surviving spouses worry about financial matters, particularly outstanding debts left behind. "Will my spouse be responsible for my debts after I die" is a question we are regularly asked by couples when discussing their estate plan.
The answer is not always straightforward. Liability depends on various factors, including whether the debt was shared, if you were a guarantor, and the financial standing of the estate.
In this article, we'll be discussing different types of debt, how they are handled, and other important considerations. Please note that we'll be discussing Queensland specifically, as estate law varies from state to state.
What Happens To Debt When A Spouse Passes Away?
In Queensland, debts do not simply disappear upon death. Instead, they are typically paid for from the deceased’s estate in accordance with the Succession Act 1981 (Qld).
The estate includes assets such as property, bank accounts, investments, and personal belongings. Before any inheritance is distributed to beneficiaries, outstanding debts must be settled from these assets.
Once debts are paid, the remaining assets are distributed to the beneficiaries named in the Will.
If the estate does not have enough assets to cover the debts, it is considered insolvent. In such cases, creditors may receive only a portion of what is owed, and the surviving spouse is generally not responsible for the remaining amount, unless they are legally liable (as we'll discuss below)
Types Of Debt & Your Liability
Whether you are personally responsible for your spouse’s debts depends on the type of debt and how it was structured.
Individual Debts
If the debt was solely in your late spouse’s name, such as a personal credit card or loan, it is usually the estate’s responsibility to repay it. As the surviving spouse, you are not personally liable unless specific legal circumstances apply.
Joint Debts
If you and your spouse took out a joint loan, such as a mortgage or car loan, you will remain responsible for repaying the full amount, even after their passing. This is because joint debts are considered shared liabilities.
Guarantor Agreements
If you acted as a guarantor for any of your spouse’s loans, you may still be liable for repayment if the estate cannot cover the outstanding balance.
Secured Debts
Debts that are secured against assets in another person's name, such as a mortgage, are tied to the property or item used as security. If the estate cannot cover the debt, the asset may be sold to repay the amount owed.
Frequently Asked Questions
Am I Responsible For My Spouse’s Credit Card Debt?
If the credit card was solely in your spouse’s name, the debt becomes part of their estate and must be paid from the estate’s assets. However, if the credit card was a joint account, you are responsible for repaying the outstanding balance, even if you did not incur the debt.
If you were listed as an 'authorised user' rather than a joint account holder, you are not personally liable for the debt. It is critical to discuss this with your financial advisor and financial institution (bank) when opening any joint accounts to ensure it is in your best interests, and how this debt must be handled.
If the estate lacks the required funds to repay the debt, and the credit card was solely in your spouse’s name, creditors may write off the debt or seek repayment through any secured assets. Seeking legal advice can help clarify your obligations and options should it be required.
What Happens To HECS-HELP Debt?
HECS-HELP debt (student loan debt) does not transfer to the surviving spouse or beneficiaries. In Australia, this type of debt is wiped/forgiven upon death, and there is no obligation for repayment.
A quick side note, it is a common misconception that your HECS-HELP debt is wiped when living overseas. Since 2017, legislative changes have closed this loophole that previously made expats exempt from paying their HECS-HELP debts.
Can Creditors Claim My Inheritance To Repay My Spouse’s Debts?
Before any inheritance is distributed, debts must be settled from the estate’s assets.
If the estate is solvent (where all assets exceed all liabilities), creditors will be paid first, and the remaining assets will be distributed according to the Will.
If the estate is insolvent (where all liabilities exceed all assets), creditors may write off remaining debts, and beneficiaries may receive little or no inheritance.
Practical Steps When Your Spouse Passes Away
If your spouse has passed away and you are concerned about their outstanding debts, consider taking the following steps:
Seek Legal and Financial Advice
Estate management and debt resolution can be complex. Consulting a lawyer and financial advisor can provide clarity on your rights and obligations. Remember, lawyers are not financial specialists or accountants, and do not understand the complexities of your personal financial health. Our role is to assist you through the legal administrative requirements.
Confirm Debt Details
It's important that you remain informed of all outstanding debts, including personal loans, credit cards, and joint liabilities.
Contact The Executor
The executor of the Will is responsible for managing the estate and settling debts. If you are the executor, seek legal advice to ensure you are fulfilling your obligations. An experienced lawyer will generally guide you through this process, and can ensure a smooth estate administration.
Notify Creditors
Inform creditors of your spouse’s passing and provide them with a death certificate when required. They will then liaise with the estate (the executor of the Will or a lawyer) regarding repayment.
Check Your Liabilities
If you are unsure about your responsibility for a debt, confirm with financial institutions whether it was in your name or joint.
What If There Is No Will?
If your spouse dies without a will, their estate is distributed according to Queensland’s intestacy laws (Part 3 of the Succession Act 1981).
In this situation, debts must still be paid before assets are allocated to beneficiaries including the surviving spouse.
Get Legal Advice
As discussed above, whilst you are not automatically liable for your spouse’s debts, you may be responsible for joint loans, guarantor agreements, or secured debts. The deceased’s estate is typically used to settle outstanding amounts, and if the estate is insolvent, creditors may not pursue you unless a legal obligation exists.
The loss of a loved one can be a stressful and emotional time for all involved, and it's important you navigate this complex time with experience. At RHC Solicitors, our estate solicitors have helped thousands of individuals, couples, and families prepare and manage estates. We understand how debts must be handled upon the death of a loved one, and are always available to provide guidance and support to ensure a smooth estate administration.
Whether you need assistance with estate management, debt resolution, or understanding your financial obligations from a legal perspective, we are always here to help.
If you have any questions, or have recently lost a loved one and would like to discuss how we can help you, don't hesitate to contact us.
Disclaimer: This publication is not intended to be comprehensive, nor does it constitute legal advice. We are unable to ensure the information is current and there is no guarantee in relation to accuracy. You should seek legal or other professional advice before acting or relying on any of the content of this publication. The views and/or opinions expressed in this publication is that of the author and may not necessarily represent the views and/or opinions of RHC Solicitors.
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