Managing Credit Card Debt During a Divorce

Divorce can be a challenging experience, especially when it comes to financial matters. One of the most complicated aspects is how to handle credit card debt. Understanding how your state treats the division of assets and debts is crucial. At O1ne Mortgage, we are here to help you navigate these complexities. Call us at 213-732-3074 for any mortgage service needs.

Who Pays Credit Card Debt in a Divorce?

When you get divorced, you are still responsible for any debt in your name. If you have shared accounts, such as a joint credit card or mortgage, you and your ex will likely share responsibility for the debt equally. How credit card debt accrued during marriage gets divided depends on several factors, including where you live. States handle debt from a marriage in one of two ways: community property or common-law property.

Common-Law States

Most states follow common-law property rules, where marital property is divided equitably. Courts in these states usually hold the spouse who incurred the debts solely responsible for repayment. Currently, there are 41 common-law property states. In these states, you are responsible for:

• Credit card debt solely in your name
• Joint credit card debt in both your name and your spouse’s
• Credit card debt from an account you cosigned for your spouse, even if not owned jointly

Note that you can opt into a community property framework if you live in Alaska, South Dakota, Tennessee, Kentucky, or Florida, though you must meet the state’s individual requirements.

Community Property States

The other nine states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—use community property rules that typically divide property equally. In these states, both spouses are usually responsible for debts incurred during the marriage by either party, but not for debts incurred before marriage. In community property states, you and your spouse will be held equally liable for:

• Any credit card debts in your name (as a sole owner or jointly)
• Credit card debt you cosign for, even if it’s not owned jointly
• Any credit card debt or loan belonging to your spouse that was incurred during marriage, even if your name isn’t on the account or you’re not a cosigner

If you live in a community property state, there are ways to keep your property separate after marriage, which can offer protection in a divorce.

Exceptions to the Rules

There are exceptions to these rules. You can argue in court for debts or assets to be handled differently than state guidelines dictate, and the judge may have discretion to approve changes. In divorce proceedings, the judge has the right to assign a credit card debt to you, even if you aren’t technically liable for it. For example, you could be responsible for a credit card debt in your spouse’s name, depending on what it was used for. The same goes for your spouse: They could be held responsible for a debt in your name if the judge assigns it to them in the legally binding divorce decree.

A divorce decree won’t change the debt contract, so the original account holder is still held responsible by the creditor. If you and your ex shared a credit card, but your ex used it to rack up debt, the judge may assign them responsibility for paying it. However, if your name is on the account, the credit card issuer can come after you. Creditors have the right to continue their collection efforts since the original agreement included you as a borrower; they don’t have to abide by divorce decrees. However, a divorce decree does empower each party to sue their ex if they don’t pay a debt assigned to them. If you were an authorized user rather than a joint account holder, you’re likely not responsible for payment.

If you have a joint credit card, you can’t just remove yourself from the account. You’ll either need to pay off the balance or continue to make minimum payments until the card is paid off.

How Will the Divorce Impact My Credit Score?

Marital status doesn’t appear on credit reports, and you don’t have combined credit reports, so divorcing alone doesn’t affect your credit scores. However, there can be indirect impacts if you have shared responsibility on debts or bills and your ex drops the ball. Joint accounts with your ex-spouse could affect both of your scores (for better or worse) depending on if they’re paid on time. Accounts you cosigned for your spouse or that list you as an authorized user will also appear on your report while open. If the divorce decree assigned a debt to your ex, but they make late payments, miss payments altogether, or run up the balance, your credit could be affected negatively if your name is on the account.

Am I Responsible for Other Forms of Debt in a Divorce?

Divorcing couples often have more than credit card debt to sort out; one or both people might have other debts, such as auto loans, student loans, personal loans, mortgages, and business debts. The same rules above also apply, including how debts are handled with regard to common-law or community property rules. If you have questions about the specific types of debt involved with your divorce, talk to your creditor and divorce lawyer.

How to Protect Your Credit During a Divorce

While divorce doesn’t directly impact your credit, you can take steps to minimize indirect damage:

Communicate with Your Ex

Payment history is a key factor in credit scores. If your former spouse is responsible for an account with your name on it, communicate with them to ensure the account is managed responsibly and paid on time so your credit isn’t hurt.

Change Account Ownership

If you don’t trust your ex to keep paying the bills, inquire with the creditor about converting the account to an individual account to protect your credit. You and your ex may need to work together on removing your name from a joint credit card or closing the account.

Control What You Can

You can’t force your ex to pay a bill on time, but you can ensure you pay yours by the due date, which helps improve credit. You can also help your credit by reducing your debt balances.

Address Bankruptcy Early

Unfortunately, it’s not uncommon for divorce to be accompanied by bankruptcy, which can wreck credit. Depending on the situation, it could be better to file for bankruptcy before or after the divorce is finalized. If you’re considering bankruptcy, seek out legal expertise ASAP to help you decide if this is the best solution, and if so, the ideal timing.

Monitor Your Credit After the Divorce

Since divorce changes your finances, it’s smart to keep an eye on your credit during and after the split. Free credit monitoring is especially helpful if your ex is assigned to pay debts with your name on them, so you can see if the accounts are paid on time (or late or not at all). With monthly monitoring, you can address credit issues with your ex in a timely fashion.

At O1ne Mortgage, we understand that divorce can be a difficult time, especially when it comes to managing your finances. If you need assistance with mortgage services, don’t hesitate to call us at 213-732-3074. We’re here to help you navigate through these challenging times.