Divorce can be a financially challenging process. One area that often causes confusion and concern is credit card management. What happens to all those joint credit cards you and your spouse have used for years? Should you cancel the cards? Who is responsible for the debt and repayments? What should you do to protect your credit?
Here are some answers to consider as you navigate through one of divorce’s trickier financial issues.
How to cancel joint credit card accounts
When going through a divorce, consider closing any joint credit cards. This prevents a hurt spouse from running up “revenge debt” and makes it easier to divide the debt in the divorce because it creates a clean break with no further debt accumulation.
To cancel joint cards, you have some options:
If the card originated in your name only and your spouse is on the account as an “authorized user” only, the process may be as straightforward as contacting the credit card company to cancel the approved user status. Once you take this step, your spouse will no longer have access to the account through their card.
If the credit card is truly a joint card, which means it was taken out in both your names at the time of origination, the spouse wishing to retain usage of the card will need to contact the credit card company directly to learn their options for converting the card.
Credit card companies can have very different policies on what happens next. Some may allow for the removal of one person from a joint card. Others may require the account to be completely closed and a new account created in the individual’s name. Typically, spouses must co-sign any documents associated with removing their name.
Managing joint credit card bills
To protect your credit, you need to make sure that monthly revolving credit card debt payments remain paid and up to date. Divorcing spouses may squabble over credit card bills, especially if they believe the other spouse has spent more on the card.
You will want to get an agreement over details of paying the bills, and this agreement should be in writing. Your attorneys can draw up a written agreement that delineates how much each of you will pay towards the debt and who is responsible for maintaining monthly payments. This may be a 50/50 split or a share based on how much debt each accumulated on the card. Be prepared that negotiations may be needed to reach mutually acceptable terms. For example, if one spouse just purchased a new computer for their personal use on the joint card, that may factor into a larger share of the payment on their end.
And here’s why having all this in writing is key. Let’s say the two of you owe $25K spread out fairly evenly over two joint credit cards and your agreement contains 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. If applicable, your written agreement can be incorporated into your final divorce settlement, or new written terms can be created.
Should you ever keep joint accounts open?
In some situations, keeping a joint credit card open may be the best option, such as when both spouses are relying on that joint card because of other credit issues, when there are special expenses being paid with the card (i.e., child-related expenses), or when the spouses own a family business and require joint access to credit cards to run the business.
Even in these circumstances, written agreements about usage and payments should be put in place to keep the credit debt paid and under control. For example, if the family business has credit cards that both spouses can access, an agreement should clearly state that only business expenses can be paid with these cards.
Don’t forget about bonus points and travel perks!
Check your credit card statements carefully for accumulated bonus points and other rewards. These points and perks are assets in the divorce and can be quite lucrative, amounting to potentially thousands in air fare tickets, hotel stays and other rewards. Spouses can negotiate these assets just like any other marital property. In some cases, points can be converted into dollar amounts that can be applied to paying down the debt.
Cutting up a credit card is meaningless
If one spouse cuts up a credit card as a way to prove they will no longer use the card, this is simply not good enough in 2023. Cutting up a credit card may prevent physical use of the card, but is meaningless given online access to cards, smartphone wallets, and the ability to easily order a replacement card. Cutting up a card may be a symbolic gesture, but it still leaves the door open for secret use of the credit account.
Run your credit report
There may be joint accounts that you are unaware of…perhaps an old joint card that is still open or a card that a duplicitous spouse took out in your name. Look over your credit report for any anomalies and get in touch with creditors about these items to begin closing accounts. Bring any identity fraud issues to your attorney’s attention. If your credit could stand to be improved, we have tips for how to make this happen!
Using your divorce as a fresh start for your credit
In divorce, decisions will be made about how to pay off the credit card debt and how spouses will share this burden. Savvy spouses often decide to wipe out joint credit card debt at the time of their settlement so that both can start fresh. If the divorcing couple are selling their home, for example, part of the proceeds can pay off the debt, with the remaining equity split between the spouses.
Walking away from your marriage with little to no marital debt may give you stronger financial footing as you start your next chapter. Every situation is different, so carefully discuss your options with your attorney.
What’s best in your situation? Get answers to all your questions about divorce and division of marital assets and debts. Call us at 888-888-0919 to schedule your initial consultation with one of our experienced and dedicated family law attorneys. Start safeguarding your future today.