Who is Responsible for Credit Card Debt in a Divorce?

For many divorcing couples, one of the biggest financial issues to sort out is how to handle credit card debt. In fact, credit card balances are often among the most significant and common types of debt that must be addressed during a split.

How this credit card debt gets divided in a divorce can be tricky, though. It depends on several factors, such as your state’s laws, whose name is on the account, and what kind of agreements you and your ex reach.

In this post, we’ll break down what you need to know about handling credit card debt during divorce, from the typical legal processes to your options for protecting your finances and credit going forward.

How is Debt Divided in a Divorce?

When it comes to dividing debt in divorce, several factors come into play, including your state’s laws, the type of accounts held, and the nature of the debt itself.

Community Property vs. Equitable Distribution States

Equitable distribution states like Florida divide debts based on the principles of fairness and equity. Florida takes into account factors such as each spouse’s income, financial contributions, and the purpose of the debt.

Generally, the court tries to distribute marital assets and liabilities, including credit card balances, in an equitable manner – not necessarily an equal 50/50 split. Debts that were taken on for non-marital purposes may be assigned solely to the spouse who incurred them.

In community property states, though, debts incurred during the marriage are typically considered jointly owned, regardless of whose name appears on the account. This means that both spouses are responsible for repaying credit card debt incurred while married, even if only one spouse made the charges.

Joint vs. Individual Credit Card Accounts

The distinction between individual and joint credit card accounts also plays a role in determining liability for debt in a divorce.

• Individual accounts are held by only one spouse, and the account holder may be ordered to solely assume this debit depending upon the charges which were made on the account.
• Joint accounts, as the name implies, are held by both spouses, and both are legally responsible for repaying any outstanding balances.

While the account holder is typically solely responsible for individual debts, if charges were made for household or marital expenses that benefited both parties, the court may rule that both spouses share liability.

Debt Incurred During the Marriage

Any debts incurred by either spouse during the course of the marriage, including credit card balances, are considered marital debts in Florida. However, unlike community property states, the debts don’t automatically belong to both spouses.

The key factors are whether the debt was incurred for a marital purpose that benefited the household and each spouse’s financial situation and ability to pay.

Of course, there are exceptions to this rule. For instance, if the debt was incurred for non-marital purposes, such as gambling or extramarital affairs, the court may assign that debt solely to the spouse who incurred it. Additionally, prenuptial agreements can outline how debts will be divided in the event of a divorce, potentially shielding one spouse from liability for the other’s debts.

How Will a Divorce Affect My Credit Score?

Divorce itself doesn’t directly impact your credit score, as marital status isn’t a factor in calculating credit scores. However, the financial consequences of divorce can indirectly affect your credit in several ways:

• Late payments or defaults on joint accounts: If you and your ex have joint credit card accounts or loans, and one of you fails to make payments, both of your credit scores can suffer.
• High credit utilization: If you divide joint debt and transfer balances to individual accounts, your credit utilization ratio (the amount of credit you’re using compared to your credit limits) may increase, potentially lowering your credit score.
• Closed accounts: Closing joint accounts can reduce your available credit and potentially shorten your credit history, both of which can negatively impact your credit score. However, closing joint accounts is often necessary to protect your credit from your ex’s financial behavior.
• New credit inquiries: If you apply for new credit cards or loans to establish individual credit after divorce, the resulting hard inquiries can temporarily lower your credit score.

Tips for Protecting Your Credit During Divorce

While divorce can present challenges for your credit, there are steps you can take to minimize the impact and protect your financial future:

1. Close joint accounts: Whenever possible, pay off and close joint accounts to avoid liability for your ex’s debts and protect your credit from their financial missteps. While closing accounts can negatively impact your credit score in the short term, it’s often necessary to safeguard your credit in the long run.
2. Establish individual credit: Open new accounts in your name only to build a separate credit history and improve your credit mix.
3. Monitor your credit: Regularly check your credit reports for errors, unauthorized accounts, or signs of identity theft, and dispute any inaccuracies immediately.
4. Communicate with your ex: If you must keep joint accounts open, maintain open communication with your ex about payment responsibilities and due dates to avoid missed payments.
5. Seek legal help: Work with a divorce attorney to ensure that your divorce settlement clearly outlines debt division and responsibilities to minimize credit damage.

Negotiating Debt Repayment in the Divorce Agreement

Addressing debt division is a critical aspect of any divorce agreement. It’s important to establish clear terms for who will be responsible for repaying outstanding balances to avoid future confusion or conflict.

One approach is to agree to pay off all joint debts before finalizing the divorce, ensuring both parties start fresh with no shared liabilities. If this isn’t feasible, an alternative is to distribute debts based on factors such as who incurred the charges or who has a greater capacity to repay.

In some cases, one spouse may agree to assume a larger portion of the debt in exchange for a greater share of the marital assets. Selling jointly-owned property to pay down debt and then dividing the remaining balances is another potential solution.

The key is to collaborate with your spouse and respective attorneys to develop a debt repayment plan that both parties consider equitable. Ensure the agreement is clearly documented in writing to prevent misunderstandings or disputes in the future.

Other Types of Debt You May Be Responsible for in Divorce

Credit cards are just the tip of the iceberg when dividing debt in divorce. There are several other types of debt that you and your spouse may need to address in your divorce agreement.

One common type is mortgage debt. If you own a home together, you’ll need to decide whether one spouse will keep the house and take on the mortgage payments or if you’ll sell the property and split any remaining debt. Car loans are another frequent issue, especially if the vehicle is in both names.

Student loan debt can be a bit trickier. In general, student loans taken out before marriage remain the responsibility of the borrower. However, if one spouse took out loans during the marriage, the other spouse might be on the hook.

In some cases, even business debt can come into play. If you or your spouse took out loans to start or support a business during the marriage, that debt may need to be factored into your divorce settlement.

The key takeaway here is that any debt incurred during the marriage – whether it’s credit cards, mortgages, student loans, medical bills, or business loans – needs to be accounted for in your divorce agreement. Work closely with your family law attorney to ensure all debts are disclosed and fairly divided based on your unique circumstances.

Take Control of Your Financial Future During Divorce

Dealing with debt division during divorce can be stressful, but you don’t have to go through it alone. At Vollrath Law, our experienced family law attorneys are here to guide you through the process and protect your financial interests.

We know that every divorce is different, and we take the time to listen to your concerns and goals. Our team will work diligently to help you understand your options, negotiate a fair debt repayment plan, and create a clear divorce agreement that sets you up for long-term financial stability.

Don’t let the stress of dividing debt hold you back from starting your next chapter. Take control of your financial future today by scheduling a consultation with one of our understanding divorce attorneys.