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Financial problems are commonly cited as one of the top reasons for divorce and for marriage counseling. When problems arise from the irresponsible spending habits of either one spouse or the couple as a whole, credit card debt is often an issue. That leaves many couples wondering what happens to credit debt in divorce.
Before pursuing divorce, it’s wise to understand all the legal and financial repercussions, so you can prepare and protect yourself as well as possible. Start by determining whether you live in a common law or community property state. The answer to that question has a huge impact on how credit card debt is handled during divorce.
Under common law, you are only held responsible for debt that is in your name or attached to your name in some way. If your spouse has a credit card for which you are neither a cosigner or joint account holder, he or she alone is responsible for that debt. However, you are both responsible for any debt that either of you incurred on a joint account. That includes any charges your spouse, as an authorized user, makes to your credit card.
In a common law state, the judge decides which debts and what portion of each debt each spouse is responsible for. This will be spelled out in the divorce decree or separation agreement. Most states follow common law.
In a community property state, both spouses are equally responsible for all debts incurred during a marriage — regardless of whose name is attached to the debt. That means a credit card company can try to collect from you even if your spouse is the only name on the account. After divorce, all marital debts and assets will be divided between the two spouses. Typically, everything is split 50-50; however, judges in some states have some leeway to make an arrangement that is fairer to both parties, such as a 40-60 split.
Only nine states follow the community property approach:
In Alaska, couples can decide whether they would like to apply common law or community property rules.
If you live in a common law state, the best way to protect yourself is to avoid opening joint accounts. However, it may be too late for that. Most couples aren’t thinking about how to protect themselves at the start of their marriage when everything is going well, so you may have already opened a few joint accounts. In that case, follow these steps:
If you live in a community property state, a prenuptial agreement may help protect your finances in the event of a divorce. Common law and community property rules apply only if you and your spouse cannot come to an agreement on your own. Prenuptial agreements will generally be honored as long as they do not violate state or federal law.
The short answer is no. A judge in divorce proceedings may decide your spouse is responsible for paying off a certain card, but the credit card companies are not bound by that decision. The judge cannot change the terms of your or your spouse’s contract with the credit card issuer. This discrepancy could leave you in the awkward position of being liable, in the eyes of the credit card issuer, for a debt the court has assigned to your spouse.
How might this play out? Let’s say that during divorce proceedings, the judge determines your spouse should be responsible for paying off the purchases he or she made as an authorized user of your credit card. If your ex-spouse fails to pay off that debt, the credit card company can hold you legally responsible for it. You may end up having to pay off the balance yourself. In that case, you can sue your ex-spouse for violating the divorce decree and seek reimbursement. However, pursuing the case may cost more than it’s worth.
You should keep this in mind if you’re on the other side of the equation, too. If you don’t pay off a debt assigned to you by the divorce decree, the credit card company may go after your ex-spouse instead. However, by failing to follow the judge’s orders, you open yourself up to lawsuits from your ex-spouse.
If you find yourself struggling to pay off debt that accrued during your marriage, Solvable can help. We’ve reviewed dozens of debt relief companies, so we can help you find the perfect fit for your situation. Call 855-391-9733 for your free, no-obligation consultation.