Dividing credit card debt in divorce can present a challenge for some couples because of the various credit laws. All too often, people discover after the divorce is finalized that they are responsible for the credit card bills their ex ran up.
If you are facing a similar question or are wondering just how these credit card debts should be split, the following answers can give you more insight on the subject:
G's Question: We are preparing a separation agreement and have everything figured out except the credit cards. We also need to know if closing all the joint accounts is the best thing to do.
Timothy's Answer: Maintaining credit held in a joint name is only asking for financial trouble down the road. It is in your best interest to pay off the debt immediately! We recommend you formally write your creditors to notify them of your impending divorce. Request that they close the accounts, cancel the cards and ask for the current statement so you can be fully aware of your joint liability. Send the letter certified mail and retain the delivery receipt in your records. And, if you haven’t already done so, establish a credit card in your own name as soon as possible!
All divorcing couples are faced with the issue of how to divide their debt. Whether the debt is due to credit card charges or other types of loans, the simple fact is that it must still be divided somehow. It is best to pay off all joint debts before the marriage ends, but we recognize this is not always an option.
There are many ways to divide debt. The easiest way would be to split the debt equally between each spouse. While fair, this is often not the best advice as one person may struggle to make the minimum payments on the debt. If there are liquid assets in the marital estate, such as money in a savings account, you may want to consider using these funds to pay down or hopefully eliminate the debt so each party can move forward free from this financial burden. Another option would be to shift the debt towards the party who has a greater ability to pay when the marital assets are being divided. Intuitively this makes sense, however the ex-spouse would still have a contractual obligation with the credit card company to pay the debt.
Nancy's Question: How do you handle credit card debt that is in your name, but your spouse was the one who ran up all the debt? Credit was taken out under my name to get the better rates, but he needed it for his use for excess gas consumption on his job that was not covered by his employer. He also used it setting up a home office, in addition to other things unrelated. How do I make him responsible for this debt and get it out of my name?
Timothy's Answer: You are in quite an unfortunate situation due to your generosity in trying to help your ex-husband with his expenses. Credit card companies don't care why the charges were made or who ultimately benefited from purchases. When you establish credit in your name, no matter what the reasons for doing so, you become solely responsible for all purchases and therefore all liabilities.
Credit card companies won't permit you to "switch" the account holder designation from one person to another. Depending on your relationship with your former spouse, you might consider having him establish new credit in his own name and then do a "balance transfer" from your account to his. This is not always an option if the two of you are not in agreement of what his liabilities are, or if he has poor credit.
One possibility is to file in small claims court in your state. The benefits to you are it is easy to do, cost very little or no money to file, and you might be able to get a judgment in your favor. Many times small claims are settled in mediation which will allow you to have a voice in the process. The downside is, depending on how much you think he owes you, there are limits to the amounts you can file for in small claims. Another option is to seek legal action against him. Unfortunately, legal fees can get rather expensive and you still might not be totally reimbursed for his purchases in the end.
Let this be a lesson to you going forward. Your kind acts have put you into a very difficult position, leaving you solely responsible for all the debt assumed. While your husband got a better rate, you are now left holding the empty bag. In addition to being solely responsible for all the debt, your credit is at risk if you do not make all the payments and on-time. In the future, it is best the keep your financial relationship separate from the emotional one you have with any new partner.