There are a few factors that go determine whether or not a surviving spouse has to pay back a debt. Don’t do anything, until you understand the entire picture.
First, let’s make this clear: you don’t want your family to remember you as the person who left your surviving spouse burdened with a debt that she didn’t know about until after you died. Unfortunately, this does happen. However, the surviving spouse does not always share the debt.
nj.com’s recent article, “My husband died. Must I pay his loan?” explains that whether a deceased spouse's debt becomes the responsibility of the surviving spouse, depends on several factors.
Let’s say that you’re 67, and your husband passes away suddenly. What if he decided last year that he wanted to explore the open road and took out a $50,000 loan, in his name only, to buy a Class A recreational vehicle (RV) with beechwood cabinets and custom sea glass interiors that sleeps five. You didn’t want it and you can’t afford it. What do you do?
There’s usually spousal liability for debts incurred by the non-debtor spouse only for necessary goods and services, like medical expenses. Therefore, a Class A RV with beechwood cabinets and custom sea glass interiors that sleeps five hardly qualifies. However, the surviving spouse’s options depend on the contracts executed by the late husband and the discussions that his widow is now having with the bank.
Any assets in the name of decedent—like the Class A RV with beechwood cabinets, etc.—or paid into the deceased spouse's estate, would have to be liquidated and used to pay creditors in the order of priority, as determined by state statute
In New Jersey, the law says the funeral director must be paid before any other creditor, followed in order of priority by the other costs of administering the estate, like the court and attorney fees, the office of the public guardian for elderly adults, taxes, medical expenses, judgments and then all other claims.
Any life insurance or retirement funds that are paid directly to a beneficiary, and not paid to the estate of the decedent, do not have to be used to pay the decedent's debts and expenses, unless the beneficiary is required to pay the debt, as a result of being a spouse obligated to pay for necessaries, a co-signer or obligor or for similar reasons.
If, however, the estate has no assets and cannot pay all outstanding claims, claims within the same priority level must be paid pro rata.
Each situation is different, so the surviving spouse should speak with an experienced estate planning attorney, who is familiar with the laws of the state.
Reference: nj.com (August 20, 2018) “My husband died. Must I pay his loan?”