15 Mar Does my mother have to pay my stepfather’s debts after he died?

Q. My stepfather recently passed and the money he had in savings barely paid for funeral services and some credit card bills. He had Medicare and I assume there will be medical bills, plus outstanding credit card bills and personal loan in his name. He owned a house with my mother on the mortgage. Is she responsible for the medical bills and personal loans and credit card bills if they were all in his name and not shared accounts or cosigned on loan? Will the state make her sell her house to pay for any debt he incurred? Are the adult stepchildren responsible for the debt? There was no will.
— Trying to help

A. We’re sorry to hear about the loss of your stepfather.

After death, a person’s assets and liabilities are automatically transferred to his or her “estate.”

Liquidating those assets and paying the deceased person’s debts is done by an “executor” if there is a will or by an “administrator” if there is no will, said Andrew Novick, a certified financial planner and estate planning attorney with The Investment Connection and Brookner Law Offices in Bridgewater.

In either case, he said, the process begins by submitting an application to the surrogate for the county where your stepfather resided at the time of his death. You can look that up here.

The rights of your stepfather’s creditors will vary, Novick said.

You said that your mother was on the mortgage but you don’t say whether she was also a co-owner of the house, which has important implications.

“If your mother was not a co-owner of the house, then the entire house, along with your stepfather’s other assets, passes into the estate and is subject to claims by his creditors,” Novick said. “Whether the house needs to be sold to pay the creditors will be determined by the executor or administrator of the estate.”

Consulting with the heirs on a course of action is common, he said. After the debts are paid, the heirs receive what is left.

On the other hand, houses co-owned by spouses are typically held in a form called “tenancy by the entirety,” which is a special form of “joint tenancy with rights of survivorship” for married couples, Novick said.

If this was the case, then your mother automatically became the sole owner of the house upon your stepfather’s death, so the house was never part of your stepfather’s estate, he said.

“Your stepfather’s other assets would still pass into his estate,” he said. “If there aren’t enough assets to pay his creditors, the estate is insolvent and there won’t be anything to pass to the heirs.”

Novick said there are different and more complicated rules that would apply if your mother and stepfather owned the house as “joint tenants in common.” In this case, half of the property is considered separately owned by each party, so only your stepfather’s half of the property would pass into the estate.

If any of your stepfather’s creditors don’t get paid in full, the next question will be whether your mother is personally responsible for any of the remaining debts.

Generally speaking, the answer is no – your mother is not responsible for her spouse’s debts, Novick said.

But a different rule applies to medical debts.

“In New Jersey, a medical debt incurred during marriage is considered a joint debt of both spouses, regardless of which spouse incurred the debt,” he said. “Thus, your mother will be responsible for any of your stepfather’s medical debts that are not paid by his estate.

Another exception is for debts that the surviving spouse co-signed or guaranteed.

“This exception appears to apply to the mortgage, but a lawyer would have to review the documents to know for sure,” Novick said. “It is possible that she merely consented to the mortgage but did not cosign it. If your mother did not co-sign the personal loans or credit cards, only your stepfather’s estate is responsible for these debts.”

You asked specifically whether your mother might be forced to sell the house.

This would depend on which creditors are seeking that remedy, Novick said.

“If your mother doesn’t continue to pay the mortgage debt, the eventual result will be foreclosure,” he said. “This process typically moves slowly, especially after a borrower dies. The COVID pandemic has slowed the process even more. So your mother has some time to sort through the situation.”

For non-mortgage debts, it is unlikely that your mother will be forced out of her “homestead.”

Creditors can sue, get a judgment, and place a lien on the home, but judgment liens are rarely enforced until the owner dies, sells the property, or moves out, Novick said. And of course, judgment creditors have to stand in line behind the mortgage, which has a priority claim against the home.

Finally, non-spouse relatives are usually not responsible for a deceased person’s debts unless they cosigned for them, Novick said.

“New Jersey has a statute making adult children responsible for their parents’ medical expenses in some limited circumstances, but I’ve never heard of it being enforced and it wouldn’t apply to you as a step-child regardless,” he said.

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This story was originally published on March 15, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.