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Credit Card Debt in Divorce
Is your marriage in trouble? Are you considering divorce? Before you sign those papers, you should know about a relationship that you can’t break off so easily. It turns out that divorcing your spouse may be a lot easier than divorcing your creditors. Have you ever wondered what happens to credit card debt in a divorce? No matter what you and your spouse agree to, you have a contract with your credit card issuers and you are financially responsible for paying off any outstanding balances on your credit cards. Let’s find out about the credit card debt challenges you may face in a divorce and how you can gain back your financial freedom.
Who is responsible for the credit card debt in a divorce? Any debt that is in your name belongs to you, so contractually, you are responsible for it, even if someone else acquired or contributed to the debt, for example, by being an authorized user on your credit card. If you choose to not pay the debt, you can be sued by the creditor and they can even try to collect on your share of jointly owned assets. The way the courts handle debt during a divorce depends on where you file, and in common law states, which accounts for most of the country, courts will likely hold you responsible for credit card debt in your name and jointly liable for credit card debt in both names. Nine states are community property states and any debt you or your former spouse acquire after the date of marriage and before the date of separation is community property. This means that both spouses are equally liable. In both community property and common law states, even when you are not contractually liable for your former spouse’s credit card debt, a judge may order you to pay a portion of it, particularly if the debt was incurred for items necessary for the household. Regardless of the judge's orders, it does not change your contract with your creditors.
When are you responsible for your ex’s debt? You are responsible for your ex’s debt if a judge orders you to pay it. A divorce decree is legally binding, which is the judge’s ruling that makes the termination of your marriage official and spells out both parties’ rights and responsibilities. If yours says that your spouse is responsible for a debt that is in your name, he or she is legally obligated to pay, but the court order does not cancel your contract with a credit card issuer. If a credit card is in your name, the creditor can come after you if your spouse does not pay a debt as ordered. The same applies for your spouse’s debts that you are ordered to pay.
Can you get yourself removed from an account? It’s not that simple, even if you have a divorce decree ordering your former spouse to pay debts that are in your name. If the account has an outstanding balance, a creditor is unlikely to remove your name on request, even though you have a legal document ordering someone else to pay it.
How does divorce affect your credit? Your credit history and credit score are yours and do not change when you get married or get divorced. What could be affected is your credit standing in the wake of divorce if you and your former spouse handle your credit accounts differently during or after the split. Late payments, delinquency or default can affect your credit score. Closing credit card accounts or removing yourself as an authorized user can also have an effect.
How do you protect your credit during divorce? Work together, if you can. Exchange a list of all property and debts so that you both get a full picture of assets and liabilities so you can begin to negotiate how to divide it all up to avoid getting the court involved. Next, establish credit individually. Get a credit card account in your name only, and open the individual account before you close any existing accounts. Closing accounts might hurt your credit score and make it harder for you to qualify for a new account. Also, make sure to close any joint credit card accounts you have because you don’t want to leave the door open for your spouse to go out and run up debt. Lastly, protect existing individual accounts. Consider closing individual accounts to which your spouse has access to, especially if you think that he or she may run up additional debt intentionally.
How can you prepare for future damage? If you aren’t married yet, consider a prenuptial agreement, which will spell out what will happen to both parties’ income and assets if they get divorced. It can protect you against shared debt and keep everything separate. The agreement will give you power in court if your ex-spouse doesn’t comply with the terms you’ve agreed to. Get money issues out in the open. Before you talk about your wedding, talk about money. If you marry someone who is bad with credit cards, family finances are bound to be affected. If you don’t plan to keep your finances separate, you could find it difficult to reach your financial goals with a chronic debtor. And, even though you may not be responsible for the debt your partner entered the marriage with, you might one day be ordered to pay back half of that person’s debt incurred during the marriage. Think twice before opening joint credit card accounts. A joint account can be convenient, but there’s always the risk that one partner will do serious harm to the finances and credit of the other partner.
