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Credit Cards

 

Is credit card debt separate or communal?

Credit card debt incurred before the date of marriage is the separate debt of the spouse that incurred the debt. Credit card incurred between the date of marriage and date of separation is generally community debt and community debt is typically equally divided as part of the divorce judgment. Sometimes it can be very difficult to distinguish between community credit card debt and separate credit card debt. For example, assume your spouse comes into the marriage with $5,000 owed on his Visa credit card. The marriage lasted 3 years. During that 3 year period, thousands of more dollars were charged on the credit card and thousands of dollars of payments were made on the card.  At the time of the divorce, $7,000 is owed on the card. What part of that $7,000, if any, is separate debt and what part is community debt? It can be a difficult question to answer.  First, the law is not very clear on the result. Second, the result can depend on what happened with the card during the marriage. If the card’s outstanding balance never dropped below $5,000 during the marriage, then $5,000 is likely separate debt and $2,000 is community debt. If the card was paid down to zero at some point in the marriage, then the entire $7,000 may be community debt.

The title to the credit card does not determine whether the card debt is community or separate. If a couple gets married and the Husband takes out a Visa credit card in his sole name and then racks up $5,000 in credit card debt during the marriage, using the card for community purpose, then the $5,000 is a community debt, even though the credit card is held in Husband sole name. If the credit card is not paid, the credit card company may sue only Husband because he is the only spouse that signed the credit card application, but the divorce court will treat the debt as a joint community debt.

The divorce judgment does not have to equally divide each and every community credit card debt. Usually, Husband will take responsibility for paying certain credit cards and Wife will take responsibility for paying other credit cards.  If the division of the credit card debt is unequal, the parties can give one spouse or the other a bit more of the community property assets to make up the difference.

Credit cards jointly held by both spouses

If you have credit card debt that is held in the names of both parties, the best approach is to pay off that debt at the time of the divorce. Use community bank account funds to pay off the debt. If you don’t have sufficient bank account funds, consider selling a community asset to pay off the debt. Oftentimes, the parties will agree to pay off all credit card debts with the proceeds from the sale of the family home. You want to pay off all the joint credit cards because, if you don’t, if you assign a joint credit card debt to your soon-to-be ex-spouse, and that spouse fails to pay the credit card debt, it will impact your credit rating and you may end up being sued by the credit card company. It does not matter to credit card companies if the court assigned the credit card debt to your spouse as part of your divorce decree. If your spouse fails to pay the credit card company on a joint credit card debt, the credit card company will come after both of you.

If you and your spouse do not have the ability to pay off all of your joint credit cards, see if your spouse can transfer the balance on the joint cards assigned to him or her to a new or different credit card that is held in just his or her name.  That way, if your spouse fails to pay the balance on the new card, it won’t impact your credit rating.

If you have joint credit cards when you separate, you want to contact each credit card company and instruct them that no additional charges are to be made on that card.  You will acknowledge your obligation to pay the existing balance, but you want the card frozen so no additional charges can be made.  You do not want your soon-to-be ex-spouse running up a lot of credit card debt on a joint credit card after you separate.  Tell your spouse you have frozen the card.  You don’t want your spouse going out to dinner and attempting to use the card to pay for the meal only to find out the card can’t be used.  When you contact a credit card company and tell them to not allow additional charges on a joint card, they will oftentimes invite you to apply for a new credit card in just your name.  Your spouse can also apply for a new card in just his or her name.

Additional considerations

When dealing with the division of credit cards, you should also take into consideration reward miles or points that may have accumulated on the cards.  Reward miles or points can have a substantial value. Have your settlement agreement divide the reward miles or points.

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