Will a Creditor Take Profit Sharing After the Death of a Spouse?

In the United States, when you pass away while still owing unpaid debt, your spouse cannot inherit that debt. There are some cases where your spouse can still be legally responsible for repaying the debt however, particularly if you live in a community property marriage state or if the debt is co-owned by both you and her at the time of your passing. Generally however, your estate assets pay off all debts so that she is not left with the legal obligation to do so.

Probate Estate

When you die, the sum total value of all of your assets and all your liabilities is gathered and inventoried. Creditors are not allowed to take anything from your spouse when you die. Instead, they must list their debt claim against your estate and wait for the probate court to approve the payment.

Co-Owned Debt

If you and your spouse have a joint debt account when you die, your spouse may be legally required to pay off that debt by himself. Since both of you signed as responsible parties on the debt, both of you are legally obligated to repay it. As a responsible party on the debt, the creditor can take any allowable legal action against him regardless of the fact that you passed away.

Assets and Liabilities

Most states require a probate legal proceeding for anyone who passes away that owned assets of a certain value. Some states only require this process if you own real estate while others consider the total value of all your estate assets. Assets are real estate, personal property, bank accounts, investments and other items that hold value and are subject to the probate process. Liabilities are all outstanding unpaid debts. The probate process liquidates assets to pay off outstanding debts as part of the settlement process. This step is legally required before any of your assets can be distributed to heirs and beneficiaries named in your will.

Insolvent Estates

If your estate assets do not hold enough value to pay off your outstanding debts, the probate court may declare your estate insolvent. Depending upon the state you live in, all of your creditors may receive a small portion of the overall total debt you owe or they may have to write off the entire balance. Creditors are not legally allowed to pursue the repayment of all or part of your debts from your surviving spouse or other relatives, heirs or beneficiaries.