Question: My brother married a woman who already owned her home that is still in her name. They started a trucking company business, and my brother got multiple credit cards. Some were only in his name, and some were in his name and the business name.
When my brother died, he did not have life insurance, but he has all this credit card debt. The only thing they shared together in debt was a joint loan, and none of these credit cards had her name on them. As one of the business owners, is she legally responsible for paying these credit card bills? Could creditors go after her home?
Loraine’s Answer: I’m going to assume that they both had their principal residence in Georgia and Georgia law is what applies. If not, this answer may not be correct.
As for your question, the answer is “it depends.” In general, if your brother’s wife was not personally responsible for a given debt (like a personal credit card that was held just in your brother’s name and on which she was not a borrower), then she is not required to use her own assets to pay that debt.
However, if she is a borrower on a debt, like a joint loan, then she is still responsible for paying that debt even if it means using her personal funds. If she is an actual owner of a part of the business, then she will also need to deal with the business loans and business credit cards, at least to the extent that the business has income or assets available. She may need to use personal assets to pay business-related debts, too. Business loans and credit cards are often personally guaranteed by the owners of the business if the business is small and closely held; if she personally guaranteed any of the company’s loans and credit cards and the company can’t pay them, she will likely need to pay them herself. If your brother was the only personal guarantor on a business-related debt, however, then if the company cannot pay the debt your sister-in-law may not have to do so herself.
If your brother has personal debt, then those debts and possibly some of the business debts, if he personally guaranteed them and the business cannot pay them itself, will need to be addressed by his estate. This means that someone likely needs to probate his Will (if he has one) or open his estate for administration (if he has no Will) and then carry out an estate administration.
If there aren’t enough assets in the estate to pay all his debts, then his spouse and any minor children he might have may be able to get in front of at least some of the creditors using a Petition for Year’s Support. I strongly recommend that his spouse (as well as the nominated Executor under his Will, if he has a Will and if someone other than his spouse is nominated as the Executor) consult an experienced probate attorney. The attorney can gather information and help your brother’s spouse determine her best options and what she may need or want to do to deal with the estate, the business, other estate assets, and the debts.
Key Estate Planning Takeaway: In general, a spouse is not personally responsible for a debt on which he or she was not a borrower. If a deceased spouse leaves personal debt behind, that spouse’s estate will need to address those debts.
This “Q&A with Loraine” blog series is inspired by answers from Morgan + DiSalvo Partner Loraine DiSalvo to actual user questions posted by individuals on www.avvo.com. This blog is a more in-depth response than can be given on their site under their character limits for answers. To view the original question and Loraine’s original response, click here.
