You can divorce your spouse, but if you don’t take extra steps to protect yourself, getting rid of your joint card debt will be more difficult. Credit card companies are not bound by divorce decrees, so they can sue you for joint debt if your ex doesn’t pay up.
That’s why divorce lawyers, financial planners, and credit counselors recommend that you leave your marriage debt-free. By redeeming joint cards together, or splitting the joint card debt and transferring it to cards in each partner’s name, the goal is to relieve you of liability for your partner’s debts. It’s also important to make sure you cancel all joint credit cards during the divorce process.
The consequences of entering a new single life with joint debt are potentially painful: if your ex files for bankruptcy or simply doesn’t pay what they owe, your creditors could sue you for the full amount of the debt plus interest. and fines. You can include provisions in the divorce agreement to force your ex to pay, but going to court is expensive and time consuming.
Who is responsible for credit card debt in a divorce?
Debts incurred during a marriage are typically both parties’ joint liability if both parties are credit card guarantors, says Bill Glassner, financial planner at Glassner Carlton Financial Planning in Cedar Knolls, New Jersey. “However, if the credit card is in the name of one of the spouses and the other is just an additional cardholder, that spouse is not responsible,” he said.
The only exception are states with joint ownership, where both parties are liable even for debts incurred by one partner. The states with community laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is a co-ownership state where spouses can agree to be jointly liable for all debts.
Everything changes when you separate
After a couple separates, any credit card debt incurred is the responsibility of the spouse who made the purchases. “After this date, you need to keep proper records of your own charges so you can prove what is and is not yours,” says Brett Sember, attorney and author of The Divorce Organizer and Planner. The moment of “separation” depends on the state. Some states do not have a legal separation; you are separated the day you start living apart. In others, you need to legally separate.
There are options for dealing with joint credit card debt
There are several options for dealing with joint credit card debt. Which one you use depends on the state of your relationship with your spouse. “One way to make sure the total debt doesn’t pile up anymore is to cancel all joint cards,” says Lynn Gold-Beakin, chairman of WolfBlock Family Law in Norristown, Pennsylvania.
“Cancel all the cards you know and put them on your name,” she says. “That way you protect yourself from increasing debt. You can decide what your spouse is responsible for in a fair distribution.” Fair distribution is one of the last stages of the divorce process, when the distribution of family property and debts between each of the partners is completed.
Gold-Bikin recommends filing joint credit card documentation and debt at the start of a divorce with the court to get it on the record, which is another way to prevent your spouse from increasing debt that you may end up having to pay. .
Ellen Crane, a lawyer and social worker who runs Craine Mediation in Farmington Hills, Michigan, recommends that you and your spouse set a date after which the agreed parts of the joint debt will be transferred to new cards in each person’s name and all joint cards will be cancelled.
Other options for repaying joint debts include using joint savings or using a home equity line of credit in a joint home. If you are in financial trouble, contact an accredited credit counseling agency for help figuring out your options.
You may consider filing for bankruptcy
If you’re stuck in debt and can’t get out even with the help of a loan counselor, you may need to file for bankruptcy to get out from under it. If that’s the case and you’re still married, you should apply at the same time so that neither of you is stuck with joint debt, Crane says.
In the event that you cannot avoid joint debt in your post-divorce life, you can structure your divorce agreement to protect yourself. “If the cards are in both names and the divorce decree states that one person must pay for them, that person is liable for the debt in the eyes of the divorce court,” Sember says. “If the creditor comes for another person, he can go back to the divorce court and claim damages from the responsible person.”
Tips on how to protect your money in a divorce
If you want to protect your money during a divorce, here are some tips that can help you:
- Most importantly, try to leave your marriage free of common debt.
- Redeem joint cards together or split the debt between joint cards and transfer it to cards in the name of each partner.
- Cancel all joint credit cards.
- Clearly agree on who will use which cards to pay off the debt.
- Skip the costs of a lawyer by seeking the help of an intermediary or financial planner.
- Keep detailed records of your expenses to prove what is yours after you separate.
- File joint credit card and debt documentation with the court as soon as possible.
- Use a joint savings or home equity line of credit in a joint home to pay off the joint debt.
- Contact a credit counselor if you are drowning in debt.
- If you are still married, file for bankruptcy together so that neither of you is stuck in a common debt.
How will divorce affect your credit history?
There are steps you can take to protect your credit history in a divorce, but divorce doesn’t have to be bad for your credit history. Your credit score does not take into account your marital status, and your credit report will not include your marital status. What really matters is how you handle any joint accounts you shared with your ex-spouse during and after the divorce proceedings.
bottom line
The state you live in, whether or not you’re the guarantor of your spouse’s debt, and other factors determine what happens to debt during a divorce. Working with a divorce lawyer can help you better understand debt management options during and after the divorce process.
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