Credit Card Debt and Divorce
February 4th, 2009 by Kenneth Long
Credit card debt can be one of the most difficult and cumbersome challenges when splitting assets and liabilities as a part of a divorce settlement. Many households have joint accounts, which can amplify the problem. If the divorce is not amicable, then longlasting credit damage is likely to occur to one or both parties!
Account Ownership is the Issue
Regardless of which party is held responsible to repay a certain debt, the lender will still hold the account holder liable. That account holder could face damage to their credit rating if the other party fails to pay or misses a payment. In addition, if the payments are not made, then the lender could file suit with the account holder.
The home is usually in both party’s names, which can pose challenges if one party cannot afford the monthly mortgage payment. If a car is given to one spouse but remains in the other spouse’s name, then the account holder is ultimately responsible for making sure that the other spouse properly makes their payments.
Where credit card debt gets dicey in a divorce is that there are often more disputes about whose debt is charged on the cards. Sometimes a spouse has access to an account that was only in the other spouse’s name.
Primary Cardholder vs. Authorized User
One or both spouses may be listed as a primary cardholder. A primary cardholder would be the applicant and the co-applicant if both spouses signed for the account on the same application. In this case, both spouses would suffer credit damage if the account was not properly repaid.
A spouse that is a joint account holder but is not tasked to repay the account following the divorce should appeal to the account issuer to be removed from the account. This requires that the other account holder has sufficient credit on their own to become the sole account holder. If the lender does not feel that the other spouse has sufficient credit or ability to pay, then they may deny your request.
An authorized user can easily be removed from the account. It is as simple as calling and inactivating the card used by that authorized user. The authorized user would then have no legal responsibility to the lender to repay the account.
Spouses should definitely consider the impact of their divorce on their ongoing credit needs. It is unfortunate when one spouse can continue to damage another spouse’s credit even after a divorce.
In one extreme example, I encountered one spouse who had bad credit so the other spouse signed for a car. A year later, they divorced and she was granted use of the vehicle and was required to continue making the payments. However, she stopped making payments on the vehicle. She even went as far as buying another vehicle to drive while the existing car sat with payments in arrears. The vehicle was repossessed, and he had to negotiate a repayment schedule with the lender. Fortunately, the lender was a credit union and they limited the negative credit reporting as a result of the incident. Most lenders will not be so lenient!
In most situations, you should demand that you have control of the payments that are in your name. If a financial settlement must be made to balance the negotiations, then that could be a way to keep it equitable.
Credit card debt and divorce is a tricky subject that requires careful consideration of legal liabilities as well as the normal process of divorce. If you are concerned about how to divy up debt, you should make sure your divorce lawyers understand the ownership of the accounts.
This entry was posted on Wednesday, February 4th, 2009 at 11:30 am and is filed under Marital Debt. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
November 7th, 2009 at 7:37 pm
Would you be so kind as to answer a question? I was divorced in WI in 2002, as you know WI is a community property state. In Sept. 01′ a temporary order was issued and all debts were divided and a property division was set up. My ex-wife disclosed she had a us bank card and it was listed as an individual account the courts awarded it to her to pay. She claimed in the divorce that she could not afford to pay any of the joint debt, so all the joint debt was awarded to me to pay. However, as time went on and I pulled my credit in 2004 to buy a house I found out, not only did this card exsist with my name she had one other card she did not disclose to the courts she even had. By 2004, she had enrolled both of us in consumer credit couseling without my knowledge, so my new wife had to be the main signer on our house because my credit was flawed because of this card. In 2005, I started to fight this through the credit bureaus the one that she did not disclose to the courts was removed because I got a copy of the application and she was the only one that signed it, But the card that she disclosed as an individual account, she claimed bankruptcy with in oct 05 and they came after me when i was married to someone else. I am in legal proceedings to sue her at this time can I do that in a community property state when the card was award to her as an indivdual? I had to pay over $5,000 and at the time of the divorce when the property division was done the card was $1,350 can you help me with this? is this credit card fraud if she continued to use this card even after the courts ordered her to restain from using any joint debt? thanks
November 9th, 2009 at 3:19 pm
You asked some good questions. For starters, legal action can be an expensive, stressful and time consuming task. While there would definitely be a clear loser if you sue her, I don’t know that there would be a clear winner once you sort through the legal bills and aggravation. If you choose to go that route, make sure that you are prepared for everything that accompanies such a lawsuit. Additionally, keep in mind that if she is currently in a CCCS plan, she likely does not have additional money in which to pay towards a judgment.
In terms of moving on and protecting your credit, you will need to contact the card companies directly in which you were added either as a coapplicant or an authorized user without your consent. Once you have done so, make sure that any record from those account(s) have been removed from all 3 credit bureaus.
Proving fraud is a difficult one. I hope the credit answers make sense. As far as your legal questions go, you should consult with an experienced attorney.
Good luck to you.
February 22nd, 2010 at 12:59 pm
I have a question with respect to my divorce of 1999. Prior to the divorce I purchased a bedroom suit in Florida and during the divorce my ex-spouse wanted to keep the bedroom suit as part of the divorce agreement he accepted full financial obligation in paying for the furniture. Our divorced was finalized in two different states in NY (where I lived) & FL (where he lived). It is now 2010 I just got a bill from a collection agency for this debt. I had no idea that it was not paid for. The statues of limitation for collecting this debt has run out. I do not have the furniture. I believe he still has the furniture. What can I do?
February 22nd, 2010 at 2:22 pm
Kiki:
The statute of limitations of your state of residence can limit the legal options of the debt collector. It sounds like:
(a) The statute of limitations have likely expired (varies by state).
(b) It should no longer appear on your credit report.
Basically, this means that you are likely dealing with what is known as a zombie debt collector. If that is the case, you can just ignore them or tell them to get lost! The only thing you have to be careful for is to make sure that they can no longer pursue a judgment, which depends on the statute of limitations for that debt.
June 23rd, 2011 at 5:03 pm
I think you might consider re-publishing this article.
I was divorced in 2002, after 18 years of being married. I have had absolutely no contact with my ex-husband. Our divorce decree stated that he was to pay our Credit Card (which had zero balance when we split). The week before last (2011) I received a call from a collections agent, that account was run up to $20K and the payments stopped in 2009 and the company wants me to pay HIS debt. I had no idea where he was or that (as I later discovered) he went bankrupt and I never saw one of the bills after he left (he’d transferred the address). I also had no idea that the divorce decree meant nothing. In the time we were married we NEVER carried a credit card balance, were NEVER late on a payment for anything and only borrowed money for a house. Cars and the like we paid for with cash.
My advice for anyone getting a divorce: CANCEL ALL OF YOUR CREDIT CARDS! If they have balances, pay them off, or figure out how to transfer the debt to one or other of the spouses.
July 7th, 2011 at 10:17 am
Dear BC:
You are absolutely correct. I hate that you found out the risks of holding joint credit accounts during and after a divorce.
Thank you for sharing your example. Hopefully your message will prevent ten others from a similar experience.