“Surviving spouses don't have to repay every debt of a deceased spouse. Here's what you need to know.”
It’s not uncommon for a senior to suddenly find himself the executor of his spouse’s will and have to face debt that was not taken out together.
Let’s say that you’re 67, and your husband passes away suddenly. What if he decided last year that he wanted to explore the open road and took out a $50,000 loan, in his name only, to buy a Class A recreational vehicle (RV) with beechwood cabinets and custom sea glass interiors that sleeps five. You didn’t want it and you can’t afford it. What do you do?
Is the surviving spouse responsible for paying the loan, or can she surrender this behemoth to the bank?
nj.com’s recent article, “My husband died. Must I pay his loan?” explains that whether a deceased spouse's debt becomes the responsibility of the surviving spouse, depends on several factors.
There’s usually spousal liability for debts incurred by the non-debtor spouse only for necessary goods and services, like medical expenses. Therefore, a Class A RV with beechwood cabinets and custom sea glass interiors that sleeps five hardly qualifies. However, the surviving spouse’s options depend on the contracts executed by the late husband and the discussions that his widow is now having with the bank.
Any assets in the name of decedent—like the Class A RV with beechwood cabinets, etc.—or paid into the deceased spouse's estate, would have to be liquidated and used to pay creditors in the order of priority, as determined by state statute
In New Jersey, the law says the funeral director must be paid before any other creditor, followed in order of priority by the other costs of administering the estate, like the court and attorney fees, the office of the public guardian for elderly adults, taxes, medical expenses, judgments and then all other claims.
Any life insurance or retirement funds that are paid directly to a beneficiary, and not paid to the estate of the decedent, don’t have to be used to pay the decedent's debts and expenses, unless the beneficiary is required to pay the debt, as a result of being a spouse obligated to pay for necessaries, a co-signer or obligor or for similar reasons.
However, if the estate becomes insolvent and there’s insufficient funds to pay all outstanding claims, claims within the same priority level must be paid pro rata.
Talk with an experienced estate planning attorney about the specifics of your situation.
Reference: nj.com (August 20, 2018) “My husband died. Must I pay his loan?”