My Spouse Died with Debts
“My wife/husband passed away and left debts. Do I need to pay it?”
We get this question from time to time, and it is an important one. A spouse’s death is stressful for many reasons. In addition to the emotional stress, the financial stress can be enormous. It can become even more daunting when you learn about unpaid debts.
So, what happens? It depends on a variety of factors and the unique circumstances of each scenario.
First of all, from a legal standpoint, debt can be very complicated. It potentially involves contract law, debtor/creditor law, family law, and probate law. Also, each situation is unique, which further complicates things. Generally speaking, though, it is useful to discuss how Texas probate law protects the surviving spouse.
General Homestead Exemptions
Texas has among the most generous homestead laws in the country. Generally, a “homestead” comprises “exempt” property. Exempt property is property that is shielded from creditors. This means that, even if a creditor sues you and gets a judgment against you, they cannot attach that judgment to your homestead assets. Your homestead assets are protected.
So, which specific assets are protected by Texas homestead laws? The most important is the home. For more detail about other protected homestead assets, you can find a full list and in Sections 41 and 42 of the Texas Property Code.
In addition to the above, certain types of retirement and investment accounts are also protected from creditors. There are a variety of such accounts, which include different types of IRAs and 401(k)s, among others.
There are also some limitations and exceptions. For example, if you don’t pay your taxes, or if you stop paying your mortgage, your home could be foreclosed. In addition, if you anticipate a judgment against you, and then hurriedly transfer money into one of the exempt types of assets, then you might be found to have fraudulently transferred those funds in order to evade creditors. If a fraudulent transfer occurs, those funds will not be protected.
So, what does this mean for surviving spouses?
First of all, it means that, if your spouse left certain types of debt, creditors cannot access your homestead assets to satisfy that debt. Even attempting to do so would is futile. As a result, a surviving spouse will be able to re-build without an overwhelming burden of debt, and won’t lose the house. Remember, it is still necessary to pay the taxes and mortgage on the house. The distinction is that a credit card company wouldn’t be able to put a lien on the house in an attempt to satisfy an outstanding debt. (Also, even if a creditor does attempt to attach a judgment to your homestead property, you can have that judgment removed, and you can even sue that creditor for “defaming” your title.)
Ultimately, with a few exceptions, your homestead is sacred and protected—even if your spouse left certain debts.
In addition to the homestead protections, probate law offers an additional layer of protection to surviving spouses called the “Family Allowance.”
According to Section 353 of the Texas Estates Code, this family allowance protects “the amount necessary for the maintenance of the surviving spouse, the decedent’s minor children, and the decedent’s adult incapacitated children for one year after the date of the decedent’s death.” In other words, this family allowance essentially becomes a “miniature homestead.” One year’s worth of regular living expenses are totally shielded from creditors.
When combined, the general homestead exemptions and the family allowance exemption offer a great deal of protection and security from creditors. This means that most families will be fine, and that they won’t have to worry about losing their home to creditors.
As you can see, probate has multiple benefits. Not only does it safely and securely transfer assets from a deceased loved one’s estate, but it also permits surviving spouses the opportunity to assert their homestead and family allowance rights in order to shield themselves from creditors. Make sure to disclose everything to your attorney so that you can put together a plan to maximize your protections during the probate process.