While divorcing couples frequently carry credit card debt, when a divorce case is settled often little attention is paid to these debts beyond their being assigned to one spouse or the other in the divorce judgment.
Creditors are not obligated to respect the terms of your divorce judgment. If your spouse is supposed to pay a joint credit card debt and fails to do so, the credit card company may come after you for payment.
Care must be taken that once the settlement is reached, one spouse will not be held responsible for additional credit card debts incurred by the other, and that each spouse is protected to the maximum extent possible if the other fails to make payments and ultimately to pay off their share of any joint credit card debt.
Often the parties to a divorce will assign to each spouse the responsibility for specific credit cards and their associated debt. To help ensure that all joint debts are identified, including any credit cards which may have been taken out by one spouse without the other spouse's knowledge, it is beneficial to get copies of the credit reports of the divorcing couple and to make sure that the debt from any creditor not paid off in full is assigned to one spouse or the other.
If one spouse will be more capable of paying off credit card debt after divorce, it may be appropriate to assign most or all credit card debt to that spouse, adjusting the division of other debts or of the assets of the marital estate in order to maintain balance. In many cases, refinancing credit card debt may be as simple as applying for a new credit card and requesting a balance transfer.
When you divorce, you should make sure that you either close any joint credit cards, or that at a minimum you have your name removed from any joint accounts that will continue to be used by your spouse. Removing your name from an account will not end your liability for debts incurred up to that point, but it should end your responsibility for any new debts incurred on those accounts by your spouse.
If a credit card company will not remove your name from a credit card that carries a balance, you can prioritize having that credit card debt paid off or refinanced as part of the divorce settlement. Similarly, if you hold any accounts in your own name for which your spouse is an authorized signer, you should revoke the authorization. That way you will not have the surprise of receiving a bill for a credit card for which you are responsible, that includes new charges made by your estranged or ex-spouse.
After a divorce, it is not uncommon for one spouse to fail to pay off a joint credit card debt from a card that was obtained during the marriage. If appropriate steps were not previously taken to cut off liability, even though the new charges are made after divorce, both spouses on a joint account may remain liable for the new charges.
- The debt load on jointly held credit cards, delinquent payments, and any default or referral to a collection agency will appear on the credit reports of both account holders.
- The creditor will also be able to pursue either or both account holders for payment, including interest, penalties, and possibly legal fees.
The creditor does not have to be fair. If it wants, it can direct all of its collection efforts at the innocent spouse.
Protections from Default
To protect the ex-spouses, a divorce judgment should include:
A deadline by which the joint credit card debts allocated to each spouse must be paid off in full, and provide for appropriate remedies in the event that repayment does not occur;
A hold harmless clause in the divorce judgment that prevents the spouse who is responsible for the debt from trying to shift any responsibility back onto the other spouse; and
An indemnification clause that requires the spouse who is responsible for the debt to repay any losses suffered by the other spouse, including any payments made toward the debt by that spouse, and legal fees incurred in defending against a collection action or returning to court to compel compliance with the terms of the divorce judgment
Provisions of a divorce judgment relating to the division of assets and debts, including credit card and charge account obligations, are not ordinarily dischargeable in bankruptcy. However, if your ex- declares bankruptcy your creditors will turn to you to pay the balance of any joint debts, even if those debts were assumed by your ex-spouse in the divorce judgment.
Whether or not you are concerned that your ex-spouse may declare bankruptcy before paying off the debts, discuss the possibility of bankruptcy with your lawyer and make sure that the judgment is structured to give you the maximum available protection in the event of bankruptcy.