What Happens To My Credit Card Debt After My Divorce?

California is a community property state. Because of this, many people often wonder what happens to their credit card debt after they divorce.  As with assets, there are two types of credit card debt which must be assessed in the divorce process, namely solely held debt, and jointly held debt.

Debt Which May be Sole Property

Any credit card which a person had prior to their marriage is considered sole property. All new balances are their responsibility with one possible exception: If a spouse opts to obtain a second card — an authorized user card — in the other spouse’s name, the spouse making the charges may be held responsible for the debt which the authorized user incurred after the date the couple legally separated.

This works differently for credit cards, which only one spouse applies for and the other has no authorized user status in California. In states where there are no community property laws, spouses may apply for credit cards only in their name. They alone have the responsibility for ensuring the monthly bills are paid on time, and the account is reported properly on their credit report. There are some significant differences in how credit cards are handled in community property states.

Credit Card Debt in Community Property States

When couples take on debt in a community property state, both people are responsible for the debt. This means even if a credit card has only one signatory and the application was filed by only one person, both are taking on the liability for ensuring the bills are paid on time. Should one spouse fail to make regular payments, it could impact the credit of the other partner since they are equally responsible for repayment of the debt.

Credit Card Debt and Divorce Proceedings

When a couple is divorcing in a community property state, the assets of the marital estate are divided between the two parties. The same is generally true for debts. However, some exceptions may apply when it comes to credit card debt, as follows:

• Credit cards obtained prior to marriage — either party may have come into the marriage with their own credit cards and have done nothing to add the other spouse as an authorized signer. In these cases, the person who has their name on the card will retain that debt following the finalization of their divorce.

• Single name credit cards obtained after marriage — when a married person in California applies for a credit card after marriage, both spouses are responsible for repaying the debt. If the court orders one party to accept the debt as part of the divorce agreement, both spouses are still liable until the debt is paid in full.

• Joint name credit cards — jointly held credit cards are the responsibility of both spouses until the balances are paid in full.

Credit Card Debt Incurred After Separation

Another issue which confuses many is credit card debt which is incurred by either spouse after the date they have legally stopped living with each other. In California, this does not apply. Debts which are incurred on a credit card until the date the divorce becomes final are still the responsibility of both parties. There may be exceptions to this which must be backed by documentation. For example:

• One spouse spree spending — if you can document that your spouse went on a spending spree following your legal separation, the court may assign that debt to them in the divorce. Keep in mind, for this to be presented to the court, you will have to document credit card balances from the date of the separation until the matter is heard in court. One important point about this: If the card is in both names, there will have to be an agreement on when the balance must be paid off because, legally, both spouses are still responsible for the balance if the card is in two names.

• One spouse benefited — another potential way to have the court assign credit card debt to only one spouse is to show they are the only one who benefited from the use of the card. An example of this may be if one spouse has a business and was using a personal card for business purchases only. Remember, this requires documentation from the spouse claiming the other benefited. It is also worth remembering the credit card company does not care who benefited from the card; they are only interested in getting paid.

Paying Credit Card Balances After Divorce

Credit card debt which is only in your name but ordered to be paid by your former spouse is problematic if they fail to make payments. After all, this will impact your credit score. The same is true for credit cards which are held in both your names. There are some potential options to ensure you will not be liable for credit card debt which your spouse is ordered to pay as part of your divorce agreement. These may include:

• Liquidating assets — this is likely the best option in most cases. The two partners agree on specific assets to be liquidated and the credit card balances are paid off eliminating any concern about either party being liable for the debt or facing a potential problem with credit scores.

• Balance transfers — another possible option is to have the spouse who is responsible for the balance open a new card and transfer the balance they are responsible for to the new card.

• Include in judgment — it is possible to ask the court to include your marital settlement agreement (MSA) as part of your divorce judgment. This would allow you to file a contempt of court request in the event your ex-spouse does not pay the bill on time. Remember, this will not protect your credit.

Dealing with credit card debt during a divorce is not easy. If you need help with your California divorce, or if you need help with credit card debt information during your divorce, contact The Law Offices of Steven M. Bishop, Attorney at Law, at (619) 299-9780 or contact us online.