The average American couple owes upwards of $16,000 in consumer credit card debt. What happens to credit card and other marital debts after separation and divorce? Here’s a breakdown and some best practice options:
What type of debt is it?
Credit card accounts in your name only. You are responsible for any debt incurred on your own credit cards during your marriage, unless it was for martial purposes. For example items for the house, clothes for children. Be aware that your spouse may hotly contest being held responsible for something like a new living room sofa that you chose to buy without consultation or agreement.
Joint credit card and/or loan accounts in both your names. You are responsible for debt incurred in your name and your spouse’s name while you were married. This is called joint marital debt. If 20K is owned on your joint credit card, generally, you and your spouse share responsibility for paying off the debt. A judge could look at extenuating circumstances such as one spouse running up the balance on a joint card as part of having an extramarital affair, but that is an exception.
Dealing with debts during separation and divorce
During separation, spouses can enter into a written agreement of how to pay off marital debt, whether that’s through agreeing to split the monthly minimum payment or coming up with some other plan. This is something your attorney can help you with. Bottom line: get it in writing. This arrangement can be further negotiated and formalized in the divorce settlement.
Closing joint accounts. Once you’ve made the decision to divorce, one common piece of advice is to go through your accounts and close all joint credit cards. This won’t erase the debt, but it will stop any new debt from being accrued. This is an important step even if you are good terms with your soon-to-be ex.
Important note: Cutting a credit card in half may prevent you from physically using it, but this is not the same as closing the account. To officially terminate the line of credit associated with the card, you will need to contact the credit card company directly and may need your spouse to co-sign any documents associated with closing the account. If your spouse volunteers to be in charge of submitting paperwork, insist on receiving documentation from the creditor stating the closure of the account.
Who is held responsible for non-payment? If you leave that joint credit card linger and your spouse stops paying, you are risk for your credit taking a hit. (Similarly, If you co-signed a loan to finance the family car, you can still be held responsible for that loan even after separation/divorce.) Non-payment of marital debt is a very common way that credit gets ruined in divorce.
Some spouses don’t even know which cards are still open or that some joint cards even exist. This is why it is also important to run a credit check and/or get credit monitoring to check for open accounts. You can obtain a free credit report annually at freecreditreport.com or you can obtain it from any of the major reporters: Experian, Trans Union and Equifax. Major credit bureaus also offer guides for how to read these reports.
Payment enforcement. Let’s say the two of you owe $25K spread out fairly evenly over two joint credit cards. In your divorce settlement there is language that you each agree to pay off one of the cards within 3 years. You’ve been keeping up your end of the bargain, but you eventually find out — usually by a call from a collections agency — that your spouse has not.
With your settlement in hand, you can go to the courts for payment enforcement. With no written agreement, the courts may not be able to help you and you could find yourself needing to decide between paying it yourself or taking a hit on your credit.
A divorce alternative for wiping out debt. To avoid problems with keeping up with payments, one avenue to consider is using the divorce settlement to wipe out the marital debt. Let’s say you and your spouse sell the marital home as part of the divorce. The net proceeds from the marital home can first be applied to all marital debt before the remainder is shared between the two of you. For many divorcing couples, leaving divorce debt-free is often a pretty good proposition.
Can’t reach an agreement on your own? The New Jersey courts have the power to determine how debt should be divided between divorcing spouses, if you and your spouse can’t agree on what should happen to credit card debt after separation and divorce. A judge must first verify two key points. The first is that the debt actually exists, so provide billing statements and other records. The second is providence evidence about when the debt was incurred, and by whom. Financial documents, such as bank statements, copies of credit card bills and so forth are usually enough to prove that the debts claimed are legitimate. These records can also be used to help the judge differentiate between “marital” and “non-marital debt.”
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