My spouse has a six-figure debt. Should we keep our finances separate?

February 11, 2020

Of all the things new doctors bring to a relationship, the most common may be their education-related debt.

More than half (55%) of recent medical school graduates in the red said they owed $100,000 or more.Next come those lean years in residency, when physicians in training may rely on a line of credit to meet their financial needs.

Having a spouse or partner2 who is deep in debt can strain any relationship — especially if you’re just starting your lives and careers. You may feel you need to hold off on important things you want to do together, such as travelling or starting a family or buying a home.

However, physician debt does not necessarily mean putting your lives on hold. It is very common for doctors to borrow money early on in their careers to finance medical school, get through residency or establish a practice. This type of debt won’t usually interfere with your ability to get financing as a couple, if you need it. In fact, that white coat might even work in your favour when talking to lenders.

If your spouse or partner has “good” debt, lenders may not mind

Your instinct may be to keep your finances separate. You may feel you’d look better to lenders without your indebted spouse or partner in tow when, say, applying for a mortgage or buying a car. Yet, in practice, a joint approach could serve you better as a couple, despite your spouse or partner’s debt.

You’ll likely find lenders eager to offer credit, and at preferred rates, to residents, fellows and physicians — and you can work this to your advantage. Financial institutions recognize that some level of debt is typically acquired through medical school and training, and it doesn’t scare them away.

It could be a different conversation (but not necessarily a deal-breaker) if your spouse or partner also had the same amount in unrelated credit card debt. If this were the case, the important thing would be to seek advice on how to manage debt wisely; and to keep a lid on how much you borrow for a home or any other purchase.

Merging finances can boost the power of your money

Just as you each bring strengths to your relationship, your credit histories and profiles may complement each other. When it comes to finances, doctors generally score well for creditworthiness, based on the profession’s solid history of repaying debt, whether incurred for medical training or for other things.

Note that from a creditor’s perspective, the person who borrowed the money is the one expected to pay it back, so you’re not automatically responsible for your spouse or partner’s pre-existing debt.

And while it’s fine to decide to keep some things separate, there are definite advantages to merging other elements of family financing.

Buying a home. Teaming up to buy a home may help you qualify for a mortgage more readily or get a better lending rate. Further, if you both have savings in RRSPs, you each may qualify to withdraw (or “borrow”) up to $35,000 from your RRSP tax-free under the federal government’s Home Buyers’ Plan. And although you have to repay this money to your RRSP over a set time period, this amount does not count toward debt-servicing calculations lenders use to qualify you.

Applying for credit. In spite of your spouse or partner’s education debt, you might be smart to apply jointly for mortgages, loans or lines of credit. You may be approved more easily, and at a better rate, lowering your cost of borrowing over time — and allowing you to repay that debt faster.

Talk numbers, openly and honestly

Debt shouldn’t be the only thing that gets your heart racing in a healthy relationship. Sharing what you own — and what you owe — is part of being together, as you find ways to start honest conversations about money.

To put thoughts into action, your MD Advisor* can help you and your spouse or partner secure your financial future as a team. That means setting goals for family and career plans, managing debt effectively, and shaping a financial strategy for the future you want. Our objective is to serve physicians and their family members.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

1 AFMC Graduation Questionnaire National Report 2019.

2 Legally married spouses acquire certain rights and obligations from the date of marriage. Life partners must either cohabit in a conjugal relationship for a specified period of time or cohabit and be the recognized parents of the same child to be considered common-law partners under tax or other legislation. Depending on where they live, common-law partners may not have the same rights as married spouses to property division (on relationship breakdown or death).

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