In our last post, we talked about dividing the one positive of credit cards – the reward programs. In this post, we discuss the distribution of credit card debt during a divorce.
Credit cards can be tricky in a divorce. If you had a card in your own name before you got married, and continued to use that card during the marriage, the debts you incurred could well be marital debt, but the credit card company only knows you as the sole debtor. Also, some people carry debt into the marriage, and that balance can be reflected in the total credit card debt.
So, what to do with all this debt in divorce?
A good place to start is to run a credit report of both spouses and determine all outstanding credit card debt. For each debt, go through and see which purchases took place during the marriage – these will be presumptive marital debt. The ones before marriage will be presumptive separate debt. If some of the debt incurred during the marriage was unknown to you, you will want to raise that issue to the court as a secretive account and a form of marital misconduct.
After all the debt is categorized, you want to make a proposed settlement agreement that keeps each party responsible for separate debt brought into the marriage and splits the marital debt in an equitable way. The court will generally split marital debt equally, but if you think you cannot afford the debt, you will want to negotiate with the other spouse to have that party bear more debt, perhaps in exchange for more of an asset or less of spousal support.
In any settlement agreement, you want to be sure you have a “hold harmless” clause that would require your spouse to indemnify you for any marital debt assigned to that spouse and any legal fees or other costs you incur in the event that spouse fails to pay on the debt. You also want to have your name removed from all joint accounts if possible (this can be difficult because you are a debt holder and the banks tend not to want to release a debt holder without some other assurance).
Credit card debt can be messy because of its long-term duration and impact on your own credit history. Be sure to be very careful in resolving this matter during divorce.
If you have questions about credit card debt and divorce, contact us – we can help.