Dividing credit card debt in divorce

You can divorce your spouse, but unless you take extra steps to protect yourself, ditching debt from jointly held cards is more difficult. Credit card companies aren’t bound by divorce decrees, so they can go after you for jointly incurred debt if your former spouse doesn’t pay.

This is why divorce attorneys, financial planners and credit counselors recommend that you leave your marriage with no joint debt. By either paying off the joint cards together or dividing up the debt on joint cards and transferring it to cards in each partner’s name, the goal is to remove your 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 going into your newly single life with jointly held debt are potentially painful: Should your ex file for bankruptcy or just not pay what they’re supposed to, your creditors can go after you for the full amount of the debt, plus interest and penalties. You can include provisions in the divorce agreement to force your ex to pay up, but going back to court is expensive and time-consuming.

Who is liable for credit card debt in divorce?

Debt incurred during a marriage is generally the joint responsibility of both parties, as long as both are co-signers on the credit cards, says Bill Glassner, a financial planner with Glassner Carlton Financial Planning in Cedar Knolls, New Jersey. “However, if the credit card is in one spouse’s name but the other is just an additional cardholder, that spouse isn’t responsible,” he said.

One exception is community property states, where both parties are responsible, even for debt incurred by one partner. States with community laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an “opt-in” community property state, in which spouses may agree to be jointly responsible for all debts.

Things change once you separate

Once a couple gets separated, any debt incurred on credit cards is the responsibility of the spouse who made the purchases. “You need to keep good records of your own charges after this date, so you can prove what’s yours and what’s not,” says Brette Sember, an attorney and author of “The Divorce Organizer and Planner.” The moment of “separation” depends on the state. In some states there is no legal separation; you are separated the day you begin living apart. In others you need to legally separate.

There are options for handling joint credit card debt

There are several options for handling joint credit card debt. Which one you employ depends on the state of your relationship with your spouse. One way to be sure that no more joint debt gets run up is to cancel all joint cards, says Lynn Gold-Bikin, chairman of the family law department at WolfBlock in Norristown, Pennsylvania.

“Cancel all the cards you’re aware of and put them in your own name,” she says. “That way, you protect yourself from having more debt run up. You can resolve the question of how much your spouse is responsible for during equitable distribution.” Equitable distribution is one of the last phases in the divorce process, when the distribution of marital assets and debts to each partner is finalized.

Gold-Bikin recommends filing documentation with the court about the joint credit cards and the debt owed on them early in the separation to get it on the record, which is another way to prevent your spouse from running up debt that you might ultimately have to pay.

Ellen Craine, a lawyer and social worker who runs Craine Mediation in Farmington Hills, Michigan, recommends you work with your spouse to set a date after which agreed-upon portions of joint debt will be transferred onto new cards in each person’s name and all joint cards will be canceled.

Other options for paying off jointly incurred debt include using joint savings or tapping a home equity line of credit in a jointly owned house. If you’re in financial trouble, visit an accredited credit counseling agency for assistance in figuring out your options.

You might consider filing for bankruptcy

If you’re drowning in debt and can’t extricate yourself, even with the help of a credit counselor, you may need to file for bankruptcy to get out from under it. If this is the case and you’re still married, you should file at the same time so that neither of you gets stuck with joint debt, says Craine.

In the event that you can’t avoid carrying joint debt into your post-divorce life, you can structure your divorce agreement to protect yourself. “If the cards are in both names and the divorce decree directs one person to pay them, that person is responsible for the debt in the eyes of the divorce court,” attorney Sember says. “If the creditor comes after the other person, they can go back to divorce court and require the responsible person to indemnify them.”

Tips to protect your money during divorce

If you’re looking to protect your money during a divorce, here’s some tips that can help:

• Most important, try to leave your marriage with no joint debt.
• Pay off the joint cards together or divide up the debt on joint cards and transfer it to cards in each partner’s name.
• Cancel all joint credit cards.
• Clearly agree to who will pay off the debt on which cards.
• Skip the attorney fees by getting help from a mediator or a financial planner.
• Keep detailed records of your charges to prove what’s yours once you split.
• File court documentation regarding joint credit cards and debt as early as possible.
• Use joint savings or a home equity line of credit in a jointly owned house to pay off shared debt.
• See a credit counselor if you’re drowning in debt.
• If you’re still married, file for bankruptcy together so neither of you is stuck with joint debt.

How will divorce impact your credit score?

There are steps you can take to protect your credit in a divorce, but divorce doesn’t necessarily have to negatively impact your credit score. Your credit score doesn’t take your marital status into account and your credit report won’t include your marital status. What really matters is how you handle any joint accounts you shared with your former spouse during and after the divorce process.

Bottom line

The state you live in, whether or not you are a co-signer on a spouse’s debt and other factors determine what happens to debt during divorce. Working with a divorce attorney can help you better understand your options for managing debt during and after the divorce process.