After the death of a spouse, it can be a struggle to deal with everyday life. Debt can complicate the matter, making it difficult to know what to do with life insurance money and whether to stay in your home. It is important to understand the debt for which you are responsible and the debt for which you will not be held accountable.
Cosigner Assumes Debts
If you are a cosigner on any accounts with your spouse, you become solely responsible for those debts when he passes away. Both spouses typically sign on mortgage and car loans, and they may both sign for credit cards issued to both spouses. This debt is your debt, and you must pay it off. You should contact the creditors to inform them your spouse has passed away, but generally you can continue to make payments on the same schedule.
Estate Stands for Debt
Any debts for which you are not a cosigner will not be your responsibility. For example, if your husband had a credit card that was only under his name, you will not be responsible for those debts. However, any assets in the estate must be used to pay off the debts before anyone gets an inheritance. This means any assets your spouse owns must go toward the debt. If you both owned the home, one-half of the value of the home must be applied to your spouse's debt. You must either sell the house and give half of the proceeds to the estate or pay off the debts by refinancing and withdrawing half of the home's equity. Any savings in a bank account must be split and used to pay off any outstanding debt.
Life Insurance Money
Life insurance money is not considered part of the estate and does not need to go toward unpaid debts in your spouse's name. This money can be used for any expenses you have or invested to help pay for things such as your children's college. However, you may want to use the money to pay off outstanding debts so you can keep your home or other valuables. Depending on your situation, it may not make sense to pay off the debts if you cannot afford to stay in the home on your salary alone. It may be better to sell the house and keep the life insurance money for other needs.
Settling Debts
The executor of the estate is responsible for settling the debts of the deceased. He must contact the creditors and inform them the person has passed away. The executor must send a copy of the death certificate and any final payments that the estate can make. Generally, he will divide any remaining assets among the creditors, along with a letter stating that the estate did not have enough to cover the remaining debt.
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