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Divorce & Credit Cards-What You Need to Know

During divorce proceedings, a common question that people ask is:

“Should we pay off our credit cards before we get divorced, or include our credit card bills as part of the divorce settlement?”   

If credit card bills are significant enough to discuss as part of a divorce case, you should make paying them off a priority.

Let’s take a closer look at how credit cards related to marital debt. Then we’ll look at 7 reasons why you should pay off your credit cards before the divorce is final.  

Marital Debt & Credit Cards

As a general rule of thumb, marital debt is any debt that married couples accrue during the course of their marriage. Usually, a divorce court will consider this to mean until the date of separation, not the divorce date itself.

In contrast, an individual credit card account or student loans from before the marriage would be considered individual debts.

For most purchases, like a car or a house, the asset is titled jointly between the two spouses. Then, the car loan would be assigned as a joint contract. Or in the case of a mortgage, both spouses would be on the title of the house.

In such cases, a car loan or a mortgage is considered joint debt. Because both spouses have agreed to be joint account holders on the credit application, they’re mutually responsible for that particular debt.

With credit cards, it can work this way. Married couples can establish joint credit card accounts. As long as they trust each other, they’re mutually responsible for their shared card debt.

But just as often, things can go horribly awry. And during the divorce process, it’s common for one spouse to do things that financially have a negative impact on the other spouse. Especially if they want to do some damage to their former spouse.

Credit cards represent one of the biggest areas for financial abuse because:

  • New cards and new accounts are easy to apply for. Especially in the other spouse’s name.
  • Unpaid bills can cause a significant negative impact on someone’s credit history.
  • Balance transfers are a great way to get cash
  • A good divorce attorney can stick the unsuspecting spouse with half the outstanding balance as part of the divorce decree.

The best way to move forward is to identify all outstanding debts, and to pay down credit cards before the divorce decree is finalized. Here are 6 reasons why.

Reason #1:  You’re most likely to have financial resources beforehand 

Leading up to the divorce, you’re in the best position to understand your marital assets. Where your joint accounts are, what you have in each bank account, etc. 

You’ll also have a pretty good idea of what you might be willing (or able) to sell to generate enough cash for post-divorce life. For example, you and your former spouse might consider selling your house during the divorce so you have enough money for living expenses.  Or you might take some money out of retirement plan as part of a QDRO.

As a side note, there might be times where you should be very deliberate about moving forward. Here are some warning signs:

  • If you don’t feel like you know everything about their finances
  • If you’re unsure about their financial affidavit, or
  • If you’re concerned they might be hiding assets

If any of the above are true, then you should consider hiring a divorce attorney or family law attorney to give you legal advice.

After your divorce, you don’t get to see what your ex-spouse’s finances look like. So if they spend all their money on something else, you might be stuck with their debt. 

Reason #2:  Your ex could run up the expenses and leave you holding the bag. 

If your credit cards are joint cards, you should strongly consider your financial health post-divorce. If both of you are financially stable, perhaps this won’t be an issue. 

But what if your ex is a spendthrift. Or if they feel like they’re going to be left high and dry. Then they might decide that you care more about your credit than they care about theirs. 

They might decide there’s really nothing to lose by racking up a bunch of credit card debt, then letting you sort through the mess.  

But why would you be responsible for your ex-spouse’s spending after the divorce? Because the credit card company might say you are.

Reason #3:  The credit card company might be able to come after you if your ex decides not to pay their fair share. 

First, a caveat: this applies only to joint credit accounts. This wouldn’t apply to an individual account.   

If you have jointly held credit cards, you should understand that the credit card companies are not bound by your divorce agreement. In other words, if your ex-spouse defaults, the company could come after you for the missed payments. Regardless of what is in the divorce agreement.   

Why? Because it is a joint credit card account, so it’s a joint financial obligation. This usually means there is probably fine print indicating “that you are jointly and severally liable for legitimate credit card purchases.”  

This should be why you should at least consider paying off all joint credit cards before the divorce. Fortunately, this doesn’t apply to individually debts.  

So, if your ex runs up his or her own credit card after the divorce, the company can’t come after you. 

Reason #4: To Preserve Your Credit Score

And if the credit card company goes after you, guess what you’ll be responsible for? Late payments. And late fees.

In addition to the amount of debt you’re on the hook for.

And if the credit card issuer goes after you for your ex-spouse’s spending, they’ll be quick to report it to the credit bureau. So to preserve your credit score, you’ll want to make sure that there’s no outstanding balance to go after.

And just to make sure, you’ll want to pull a copy of your credit report. The Fair Credit Reporting Act allows each person to obtain a free credit report from each of the credit bureaus annually.

This will allow you to ensure that any paid off balance stays paid off. And that you’re not paying interest on any outstanding balance.

Reason #5:  Interest Payments 

Everyone knows that interest payments can’t get much higher than credit card rates, right?  

The reason they’re so high is because the credit card company has no recourse. They can’t take your house, car, or anything you purchased on your credit card.  To make up for it, they jack up the interest rates. 

If you’re looking for sound financial advice, paying off high-interest credit card debt is as good as it gets. Even if you have to get a home equity loan or refinance your mortgage, that’s still better than the interest on a credit card.

You can’t find any stock, mutual fund, or other security that will guarantee a rate of return as paying down your credit card debt.  Period.   

Reason #6: Closure 

If you’re still looking for a reason to consider paying off credit cards before your divorce is final, just think of closure.  Imagine the sense of closure you’ll feel knowing that there is one less thing hanging over your head from your marriage.   

If you can’t imagine closure, then do the opposite.  Imagine the sense of dread you’ll be feeling months (or years) from now, as you’re making that monthly payment for purchases you made during your marriage. 

Conclusion 

Paying off your credit cards before a divorce will have a direct impact as you start your new life. Perhaps it’s hard to afford, or you don’t think you can swing it. Perhaps it’s hard to afford, or you don’t think you can swing it.

Regardless, paying off your credit cards is one of the best ways you can start your post-divorce life with a clean financial slate and set yourself up for success! 

If you find yourself struggling to make financial sense of your divorce, you should consult with a financial professional that specializes in divorce work and divorce negotiations.  Working with a Certified Divorce Financial Analyst® is a good way to take that first step towards a more financially sound future.