Credit Card Debt in Divorce

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 What is Marital Debt?

When married couples divorce, they must decide who gets which property items – perhaps a house, cars, furniture, personal items, etc. One important matter that often gets overlooked and pushed off until the end is marital debt.

At least through TV and movies, we have all become familiar with dramatic debates over who gets the sterling silver, but we haven’t seen many conflicts over who has to take over the Mastercard bill. Dividing assets is certainly one priority for divorcing couples, but what happens with their debt can be just as important financially, with results that can extend for years.

Dividing debt is best worked out between the divorcing spouses outside of a courtroom. Many couples go to mediation to resolve questions of how marital debt will be repaid. If an agreement can’t be reached, the judge will hear both sides of the case and make a judgment that the parties are legally required to follow.

Financial information must be fully shared with both sides to divide debt during a divorce to work out equitably. Ideally, the parties made financial decisions jointly, and now each knows how much is owed to whom.

Even if they didn’t, sorting it out now should be a team effort. Each spouse should obtain a copy of their credit report so that all debts are accounted for, and none are left out of the division of debt. Doing it right will mean less financial damage afterward, including each person’s credit score and credit report.

In many divorce cases, each spouse will be assigned the debt to specific credit cards to share the cumulative debt evenly. However, the parties can also agree to split the debt unevenly. They can also be ordered to do so by a judge based on financial circumstances.

How is Credit Card Debt Divided During a Divorce?

First, it should be noted that in a divorce, each party will be assigned any debt that the party brought into the marriage (“personal debt”). If one party owed on a credit card before the couple got married, then even if the debt was paid out of a joint checking account during the marriage, the party who originally had the debt will get it back again. Also, debts acquired after the parties separate are not considered marital or community debts. These will be assigned separately to the individual spouse who acquired the debt.

Credit cards that are held only in one person’s name: In most states, the person whose name is on the card will be held responsible. In community property states (discussed below), if the card was obtained during the marriage, both parties will be responsible for 50% of the debt, no matter whose name is on the card.

Credit cards that are held in both spouses’ names: This is joint credit card debt. In most states, both parties will likely be responsible for credit card debt on a card in both their names. This is true even if one spouse was the one who used it the most or made the payments. A judge, however, can decide that one spouse must pay more than the other.

Lenders, credit card companies, and others are not parties to divorce papers. They want to be paid. If a party’s name is on any account, they are on the hook regardless of what the divorce decree says. The parties should work together to contact the companies they owe jointly and drop one name. Note: If one party doesn’t qualify for the credit card independently, the other will still be liable for that debt.

How Do Community Property Laws Affect Credit Card Debt in Divorce?

Concerning jointly held debt, there are two forms of marital property and debt ownership in the United States. One is called “equitable division” or “common law division.” Forty-one states adhere to this system. In equitable division, equality of distribution – ensuring each party gets the same amount of assets and debt to repay – isn’t really the goal. Rather, courts look at fairness and the ability to pay. A spouse with a higher income or more property may be assigned more debt.

The court will also consider various factors in assigning the debt, including:

  • How long the marriage lasted
  • The financial background of each party
  • Whether a specific agreement exists between the parties regarding the distribution of debts (e.g., in a prenuptial agreement)

The second form of marital property and debt ownership is called “community property.” In a community property state, considerations of which spouse earns the most or is awarded the most property are not considered. Nearly all marital property is held equally (there are some exceptions). This is also applied to their debt. In community property states, each party is responsible for 50% of the debt from a joint credit card account. Nine states adhere to this system: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Puerto Rico is also a community property jurisdiction. Residents can opt into some community property in Alaska, South Dakota, and Tennessee.

How Can I Protect Myself from Future Liability?

No matter what type of state you live in, the division of credit card debt in a divorce will likely be less than straightforward. The judge may sometimes order you to pay a portion of the debt, even if you are not technically liable. For instance, this can happen if the debt was acquired to pay for improvements on a shared home or car.

In a divorce setting, it is important to ensure that liability is cut off so that future debts incurred by one spouse are not considered joint debts. This is especially true for debts that are incurred after the divorce.

For example, if a joint credit account remains open with both names, any additional charges on it might be considered joint debt by the credit company. This can lead to confusion if the credit company concerning which spouse the lender should pursue for payment. Often, they will go after both parties. This is why it is important to provide all credit card issuers with a copy of the divorce decree and to take your name off any credit cards for which you are not liable.

Also, if there are any delinquent payment issues, the referral to a collection agency might appear on both spouses’ credit reports. This is another reason that it is important that all joint accounts be closed as soon as the divorce is pending or that the spouse not still using the account have their name removed.

The divorce judgment should include a deadline for each party’s payment of joint debts to protect each spouse further. This can include transferring the debt to an individual credit card account, making the other spouse no longer liable. The judgment should also include additional clauses. This can include requiring the spouse responsible for a debt to repay any losses suffered due to the failure to pay off the debt, such as defending against a collection agency.

Finally, other language can be added to a divorce decree to help protect the spouse who is not liable for a debt. For instance, there can be clauses that protect them from being left without recourse if the other spouse declares bankruptcy before paying off the credit card debts.

Do I Need a Lawyer for Help with Credit Card Debt in a Divorce?

The laws regarding dividing debt during a divorce are very complex and will vary from state to state. An experienced divorce lawyer in your area can advise you in dividing your debt and drafting a divorce agreement that protects both spouses from future financial liability. A lawyer can also represent you in court if needed and can help you pursue additional legal remedies if that becomes necessary.

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