Originally seen on USNews.com
You may find it easier to divorce your spouse than to divorce your creditors. That's because no matter what you and your former spouse have agreed to, and even if you have a divorce decree in hand, you have a contract with your credit card issuers. You are the person who is legally responsible for paying off any outstanding balances on your credit cards.
Understand what your options are for separating yourself financially from your former spouse so that you can start rebuilding your life post-marriage.
Who Is Responsible for the Credit Card Debt in a Divorce?
You are contractually responsible for any debt that is in your name, even if someone else acquired it or contributed to it, such as by being an authorized user on your credit card. If you don't pay the debt, the creditor can sue you and even try to collect on your share of jointly owned assets.
But the way the courts handle debt during a divorce depends on where you file. In common law states, which account for most of the country, courts will likely hold you responsible for credit card debt in your name and jointly liable for credit card debt in both names.
No matter where you live, division of debts may be less than straightforward. In both community property and common law states, even when you are not contractually liable for your former spouse's credit card debt, a judge may order you to pay a portion of it, particularly if the debt was incurred for items necessary for the household.
The circumstances of every divorce are different, of course. Other factors that the judge is likely to consider include the length of separation and any agreement the divorcing spouses have come to about specific debts. A judge may distribute responsibility for the debts in a way that is different from your contractual obligations to pay, but the judge's order does not change your contracts with your creditors.
When Are You Responsible for Your Ex's Debt?
You are responsible for your ex's debt if a judge orders you to pay it. A divorce decree – the judge's ruling that makes the termination of your marriage official and spells out both parties' rights and responsibilities – is legally binding. So if yours says that your spouse is responsible for a debt that is in your name, he or she is legally obligated to pay it. However, the court order does not cancel your contract with a credit card issuer.
"You can't show your creditor the divorce decree and say you're no longer liable for the debt," says John Ulzheimer, president of The Ulzheimer Group and a national expert on credit who formerly worked with Equifax and FICO.
If a credit card is in your name, the creditor can come after you if your spouse does not pay a debt as ordered. The same is true for your spouse's debts that you are ordered to pay. Your recourse is to pursue your ex in court. Many attorneys agree that this can be a difficult and expensive journey full of headaches.
Can You Get Yourself Removed From an Account?
If you've got a divorce decree ordering your former spouse to pay debts that are in your name, you may be eager to get your name off those accounts. Unfortunately, separating yourself from financial accounts is not always a simple matter. For accounts with an outstanding balance, a creditor is unlikely to remove your name on request, even if you've got a legal document in hand ordering someone else to pay it.
"Even if the husband agrees to take the Visa and the wife agrees to take the Mastercard, that agreement doesn't bind the credit card companies," says Joni Berner, a divorce lawyer in Philadelphia.
The responsible spouse may be able to transfer the debt to an individual credit card account with a balance transfer.
"As much as possible," says Berner, "get rid of accounts that could adversely affect the nonresponsible party."
As a last resort and in case the responsible spouse doesn't or can't refinance or transfer the debt to an individual account, Berner says that the divorce agreement should indicate who is responsible for paying what, and include indemnification clauses, which can stipulate liability and consequences for failure to pay. For example, it could state you have the right to sue your ex for failing to pay a debt that he or she was ordered to pay.
How Divorce Impacts Credit
Your credit history and credit score are yours and yours alone. They do not change when you get married, and they do not change when you get divorced.
But your credit standing can change in the wake of a divorce if you and your former spouse handle your credit accounts differently during or after the split. For example, late payments, delinquency or default can affect your credit score. Closing credit card accounts or removing yourself as an authorized user can have an effect as well.
Strategies for Preserving Your Credit During Divorce
Work together, if you can. Amicable divorces are the least expensive, and contentious divorces can rack up attorney fees. "The biggest mistake is not trusting each other," Chang Rickert says. "If you can't agree how to divide the assets and debts, the court will decide for you."
She says one of the first things you should do is exchange a list of all property and debts, both community and separate. This gives both of you a full picture of assets and liabilities so that you can begin to negotiate how to divide it all up, ideally so the court doesn't need to get involved.
Establish credit individually. If you're about to file for divorce, Ulzheimer suggests getting a credit card account in your name only, before doing anything else.
Open the individual account before you close any existing accounts. Closing accounts might hurt your credit score enough to make it harder for you to qualify for a new account, and you don't want to be left with no access to credit.
Close any joint credit card accounts you have. "You don't want to open the door for a vindictive spouse to go out and run up debt on which you'll both be liable," says Ulzheimer.
Protect existing individual accounts. Consider closing individual accounts to which your spouse has access, too, especially if you think there is a chance he or she might intentionally run up additional debt. "Ending the marriage with joint accounts open, or with one party responsible for the other's cards, creates a very vulnerable situation," says Berner.
Head Off Future Damage
Get a prenup. If you're not married yet, consider a prenuptial agreement. This is a contract that people enter into before they are married, spelling out what will happen to both parties' income and assets if they get divorced. A prenup can be valuable even for couples who are not ultrahigh worth. "It can protect you against shared debt and keep everything separate," says Chang Rickert. Even if credit card companies aren't required to follow the prenuptial agreement, the agreement will give you power in court if your ex-spouse doesn't comply with the terms you've agreed to.
Get money issues out in the open. Have money talks before you plan your wedding. If you marry someone who is bad with credit cards, family finances are bound to be affected. Unless you plan to keep your finances totally separate, you could find it more difficult to reach your own financial goals living with a chronic debtor. Also, although you may not be held responsible for the debt that your partner entered the marriage with, you might one day be ordered to pay back half of that person's debt incurred during marriage.
Don't open joint credit card accounts. They are rarely offered but still possible to find. Ulzheimer and Chang Rickert both strongly discourage them: While a joint account can be convenient, with that convenience comes the potential for one partner to do serious harm to the finances and credit of the other partner. Both partners are exposed to the potential of delinquency or default caused by the other person.
Divorce is a major step. Most people want to emerge financially separated from their former spouses. Some people walk away from debt that's theirs but in the other spouse's name. "If you're left holding the bag, it's sometimes easier to accept your legal liability and pay it back rather than pursue your ex," says Ulzheimer.