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Credit Card Debt in Divorce Can Get Messy
Credit card debt in divorce means that you need to look closely at issues involving debt.
You can be held liable for your spouse’s credit card debt. depending on:
- where you live
- whether it is a joint credit card
- whether you are a cosigner, and
- whether the debt was assigned to you in a divorce proceeding.
Most states, which are called common law states—use common law rules when determining who’s liable for a particular debt in a marriage. Certain states; called community property states, follow community property rules instead of the common law when determining which spouse is liable for a particular debt. In community property states, you’re still liable for any debts in your name or that you cosign for.
Is a spouse responsible for credit card debt in divorce ?
Let’s say that Mary and Bill recently divorced. Their divorce decree stated that Bill would pay the balances on their three joint credit card accounts. Months later, after Bill neglected to pay off these accounts, all three creditors contacted Mary for payment. She referred them to the divorce decree, insisting that she was not responsible for the accounts. The creditors correctly stated that they were not parties to the decree and that Mary was still legally responsible for paying off the couple’s joint accounts. Mary later found out that the late payments appeared on her credit report.
Credit Card Debt in Divorce and debt responsibility – If you’ve recently been through a divorce – or are contemplating one.
Understanding the different kinds of credit card accounts opened during a marriage may help illuminate the potential benefits – and pitfalls – of each.
There are two types of credit accounts: individual and joint. You can permit authorized persons to use the account with either. When you apply for credit – whether a charge card or a mortgage loan – you’ll be asked to select one type.Individual or Joint Account.
The Divorce Survival Guide for Women
Individual Account: Your income, assets, and credit history are considered by the creditor. Whether you are married or single, you alone are responsible for paying off the debt. The account will appear on your credit report, and may appear on the credit report of any “authorized” user. However, if you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), you and your spouse may be responsible for debts incurred during the marriage. The individual debts of one spouse may appear on the credit report of the other.
Advantages/Disadvantages: If you’re not employed outside the home, work part-time, or have a low-paying job, it may be difficult to demonstrate a strong financial picture without your spouse’s income. But if you open an account in your name and are responsible, no one can negatively affect your credit record.
Joint Account: Your income, financial assets, and credit history – and your spouse’s – are considerations for a joint account. No matter who handles the household bills, you and your spouse are responsible for seeing that debts are paid. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names (if the account was opened after June 1, 1977).
An application combining the financial resources of two people may present a stronger case to a creditor who is granting a loan or credit card. But because two people applied together for the credit, each is responsible for the debt. This is true even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up bills and don’t pay them can hurt their ex-partner’s credit histories on jointly-held accounts.
Account “Users”
If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse’s name as well as in your name (if the account was opened after June 1, 1977). A creditor also may report the credit history in the name of any other authorized user.
Advantages/Disadvantages: User accounts are often opened for convenience. They benefit people who might not qualify for credit on their own, such as students or homemakers. While these people may use the account, you – not they – are contractually liable for paying the debt.
Survival Guide and Assistance from a Divorce Lawyer for Women
Credit Card Debt in Divorce:
If you’re considering divorce or separation, pay special attention to the status of your credit accounts. If you maintain joint accounts during this time, it’s important to make regular payments so your credit record won’t suffer. As long as there’s an outstanding balance on a joint account, you and your spouse are responsible for it.
Credit Card Debt in Divorce and Notice to Terminate Joint Account
Use this form to notify credit card issuers and banks of your plan to close a joint account — for instance, an account you share with a spouse whom you are divorcing.
This form gives you a template for requesting a “hard close,” which is the only way to make sure that an account is truly closed and prevent new charges to it. You can do a “hard close” even if there is a balance due.
Send the form to the customer service address on your statements — not to the address where you send payments.
The credit card company may seek payment from both the parties as they care only about the money due to them. What settlement had been reached after divorce is of little interest to these people.
One may feel that closing out joint credit card debt in divorce accounts is a solution to all these problems. If you have a responsible spouse this will work. But the fact is that the account does not cancel itself until somebody makes the payment. Also, after divorce, it is legally not practical to divide the debts. Hence these are some practical solution, from best to worst.
– Sell any joint asset (say, home) and pay the debt and close the account. It is a classic example of killing two birds with a stone.
– Separate credit cards can be a better option in such a situation. After applying, get the dues transferred into individual cards, divided according to your own logic or the way you spent.
– In this regard, if one of the spouses is not qualified to get a card, get one of the relatives to cosign the card before transferring the share of balance.
But, rather than being through this ordeal, the best option is to get yourself everything settled before divorce. It’s a pain to go behind all these joint issues when you are about to start a new life.
By law, a creditor cannot close a joint account because of a change in marital status. However, they but can do so at the request of either spouse.
A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis. Then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.
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