Can a judgment against me affect my spouse?

In a nutshell

Are married couples responsible for each other’s debt? If I have a money judgment against me, will it affect my spouse? The answer depends on where you live, as state laws vary. In Minnesota, generally, spouses are not liable for debt incurred solely by one party, except in specific circumstances such as divorce.

How will a judgment against me affect my spouse?

What is a money judgment?

A judgment against you means you have been sued, and the court has ruled that you are legally obligated to pay money to a creditor. A judgment, if not paid, entitles the creditor to garnish your bank account (which legally allows the creditor to seize funds from your account) or garnish your wages (in which a creditor can withhold a portion of your paycheck until the debt is paid). A court can compel you to provide to the creditor information about both your bank accounts and your employment. 

How does a money judgment affect my spouse?

How this affects your spouse depends on the state you live in. In Minnesota, a spouse is not liable to a creditor for any debts of the other spouse. However, there is an exception if the spouses live together and the debt was incurred to pay for household articles bought for and used by the family or for any necessary medical services. 

Further, if spouses share a joint bank account, the money in the joint account can be garnished to pay a judgment against just one of them. The judgment debtor is presumed to own all of the funds in the joint account. However, if the debtor spouse can prove funds belong to the other spouse and were not intended to be used by the debtor, the funds contributed by the spouse can be protected from garnishment.

Consequences of a money judgment on me and my spouse

Judgments damage a debtor’s credit score and can make it difficult for you and your spouse to obtain credit to make purchases together.  You may not be able to purchase real estate, buy a car, or even qualify for a credit card. This can force the two of you to put all new debt in the name of the party with the better credit score and create an obligation in that person’s name alone.

Even a judgment in small claims court, otherwise known in Minnesota as concilliation court, can be docketed in district court and have the same impact as a normal judgment. 

Bank levy laws by state

Community property states

As of October 2022, the following are community property states:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington, and
• Wisconsin.

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In community property states, you and your spouse share equally all properties and debts incurred during your marriage. Any assets acquired during the marriage, whether titled jointly or separately, are considered “community property” and belong equally to both spouses. This also means that you are equally responsible for any debts, even if only one of you signed for them or was named in the judgment. 

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In community property states, a judgment creditor of your spouse can garnish your joint accounts. In some states, even if you have separate bank accounts, a creditor can also garnish your separate account to pay for your spouse's debt. However, other community property states provide an exception to the rule as long as your spouse doesn't make any deposits or withdrawals from your separate account.

Common law property states

As of October 2022, the following are common law property states:

• Alabama
• Arkansas
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Hawaii
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• New Hampshire
• New Jersey
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Utah
• Vermont
• Virginia
• Washington D.C.
• West Virginia, and 
• Wyoming.
  

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In common law property states, debts are generally separate unless the debt was incurred for a family necessity (childcare or necessary household expenses, for example) or if the debt was jointly undertaken. Therefore, in these states, creditors can only go after the income or property of the other spouse if the debt was incurred by both parties or benefited both parties.

Garnishment and Bank Levies

A creditor can collect the money they owe from you by garnishing your income directly from your employer or by serving a levy against a bank account in your name, whether individual or joint. 

There are multiple ways to garnish each type of property. Garnishments from your employment will result in your employer withholding some of your after-tax income and paying it directly to your creditor. Garnishments of your bank account can freeze your account for a period of time and prevent you or your spouse from removing any funds. These funds are removed from your account in a lump sum and paid to your creditor.

You will be given notice and the opportunity to claim income or property that is exempt from garnishment. 

There are many types of property and income that can be exempt from garnishment in Minnesota, such as:

• Social security payments
• Emergency assistance payments
• Public assistance payments
• Unemployment benefits
• Workers’ compensation benefits
• Veterans benefits 
• Any income you earn below 40 times the Federal Minimum Wage
• 75% of your after tax earnings
• Your home
• Life insurance proceeds
• Income from a minor child
• Certain business property
• Other items of property up to a value limit

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To claim an exemption, you must act quickly. Failure to act within the very short time you are given to claim the exemption will result in all funds being garnished. You must act quickly to protect your own assets. In this process, an attorney is essential to help you navigate this critical and confusing process quickly. 

What to do to protect yourself or your spouse

Whether you live in a community property state or a common law property state, you can protect yourself from being held liable for your spouse’s debts by:

• Maintaining separate bank accounts
• Keeping your own assets in your individual name
• Securing an insurance policy with liability coverage

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If you or your partner has any debts before you are married, signing a prenuptial agreement before getting married can also ensure that debts are designated separately in case of a divorce. This will protect you and your spouse from being held liable for debts that aren’t yours. In Minnesota, however, you are not responsible for debts your spouse took on without you before you got married unless those debts benefited you during the marriage. 

A postnuptial agreement can also help to protect your assets if you want to remain married but are concerned about being held liable for your spouse’s financial decisions. Note that this will help in a divorce, but won’t necessarily protect you from the creditors. 

What are your options if a judgment against your spouse is affecting you?

Knowing your legal rights is the best course of action you can take. Most debt collectors do business in several states and may not be familiar with your state’s specific laws. Even collectors who do know the law may still try to get you to make payments if your spouse stops paying. 

If you don’t think you should be held responsible for a debt, ask the creditor to send you proof of your liability.

If you’ve been sued for a debt that wasn’t yours, replying to the papers you’ve been served is still crucial. Your debtor could acquire a judgment (court order) against you if you choose to ignore them. If this happens, you might be required to make a payment even if the debt is not legally your responsibility. 

Are you still liable for your spouse’s debts if you get a divorce?

Following a divorce proceeding, the court will decide which spouse will be held accountable for any outstanding debts. All debts accumulated during the marriage are considered marital debts and the responsibility of both parties — even if they are not joint debts, you are not an authorized user on an account, and you did not agree to the purchase. This includes all debts for household expenses, clothing, groceries, vacations, and other regular spending. 

Certain types of debt may be found to be nonmarital and only the responsibility of the person who incurred the debt. This includes debts and spending related to drugs, alcohol, gambling or another relationship as they were not incurred for a marital purpose. In that case, the party that did not incur that debt bears the responsibility of proving it was for a nonmarital purpose. This process can be very document-intensive and will require solid evidence to prove the funds were spent for a nonmarital purpose — if you’re in this situation, you will need an attorney by your side. 

During a divorce in MInnesota, all property and debts are divided equitably between the parties, so you may be held liable for all or a portion of the debts in your spouse's name. It depends on a number of factors including, but not limited to: 

• the property settlement
• who is receiving assets with debts attached to them
• who has the ability to pay the debt (meaning a spouse who has a higher income and is, therefore, more able to pay may be assigned more debt)

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The tricky part is that the creditor is not bound by the Court’s decision of who is responsible for each debt. If your spouse is assigned a joint debt or a debt in your name and does not pay, the creditor can still come back after you directly. Even if your divorce decree orders your ex-spouse to pay a debt, you may still be sued by a creditor if your name is on the debt. It is important that any divorce settlement includes language to move all debts to the name of the person to whom it was awarded. Sometimes that requires refinancing a house, a car, or moving credit card debt to a credit card in that person’s name alone. You can also include provisions in the divorce that certain property will be sold to pay off all debts to avoid future problems.

At very least, you must include indemnification language so you can sue your spouse for the money they should have paid on the debt. As you can imagine, that can be difficult and costly. After all, if your spouse didn’t pay a debt they were ordered to pay, what guarantees they will pay you back even if the court orders them to pay you? It is for that reason that it is important to require each party to move debts to their own names as part of the divorce. 

If I’m being sued for a debt, will I still have to make child support or spousal maintenance (alimony) payments?

Even if a creditor is garnishing your bank account or wages to repay a debt, you will still be required to make child support or spousal maintenance payments. If you cannot pay your child support or spousal maintenance, you must request a modification from the court to avoid an enforcement action. In this case, seeking legal advice from an attorney is also crucial.  Any modification of support or maintenance will only be effective from the date you serve a motion. A court will not retroactively modify either types of obligation.

My spouse has incurred a huge tax debt I didn’t know about — what can I do?

If your spouse incurred tax debt without your knowledge, you may be wondering what you can do to avoid being held liable. If the tax obligation is on a separate return that does not have your name, the IRS will not come after you for the debt but may still try to garnish jointly held funds.  If your name is on the tax return with your spouse, then you are both liable for all of the tax debt.

If the tax debt is the result of an “erroneous item” on the tax return, you may be eligible for innocent spouse relief.

Erroneous items on a tax return include:

• Unreported income, and 
• Incorrect deduction, credit, or basis.

To claim innocent spouse relief, you have to prove you did not have actual knowledge or any reason to know of these erroneous items. The IRS considers a number of factors such as your involvement with a small business, your education level, your participating in the preparation of the taxes, and other factors. 

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Whether you want to protect yourself from being held liable for your spouse’s debts, or you want to ensure that debts incurred during your marriage are split fairly during your divorce and include protections so you are not later held liable, you should consult with a lawyer who can fight for your legal rights and secure the situation you deserve. 

Schedule a free consultation with us below, and we’ll help you understand the facts of your case and create an action plan.