Credit Card Debt in a Divorce

My spouse and I are getting divorced. We have split up the credit card debt and I would like to consolidate my cards into one payment in my name only. In addition I want my name taken off the credit cards that are in her possession. How do I go about doing this?

Your questions sounds simple, but the answer may not be. Here's probably more background that you were looking for, but there can be credit card tigers lurking in the divorce woods. There are some risks and issues in dealing with credit card debt in a divorce. The fact that you both seem be trying to resolve matters reasonably is a big plus (there are too many horror stories about ex-spouse's to be running up large credit card debts and creating a raft of problems).

Even though you appear to be amicable, minimize the risk of your ex running up large bills prior to the divorce being fully concluded. You don't want your ex-to-be to incurred credit card debt on your joint credit cards before the split occurs, leaving you jointly liable for the debts and affecting your credit record negatively. Be sure every old joint credit card has been formally canceled and that you confirm the cancellation and old balance directly and in writing. Credit cards are often joint obligations of both you and your ex-spouse-to-be. If your ex used credit cards, even without your knowledge and consent, and even if in violating of a separation agreement, you're possibly still jointly liable and is jointly obligated to pay debt your ex-to-be ran up. Typically, the credit card is in one spouse's name, perhaps yours! Often you will simply have obtained an additional card for your ex-spouse-to-be. If your ex goes out and runs up thousands of dollars in expenses before the divorce and walks away your ex-to-be has no liability, her name is not on the account, even though your ex-to-be spent it all. The bank will only go after you.

This type of problem is real. You may not find this out for many years. For example, years from now you might apply for a home loan be turned down because of an earlier large write off by a credit card company from your divorce. This could occur if your ex ran up large bills and then declared bankruptcy. The bankruptcy could absolve your ex from repaying the credit card company even though the divorce decree had specifically obligated your ex to pay it!. One approach to identify this is to get balances from every known credit card company and run credit checks on yourself and your ex-to-be as part of the divorce. Try to identify any accounts, loans, or credit cards you were not aware of.

A practical tip that can help many couples, is each of you and your ex take out your own separate credit cards. Then transfer to the new separate cards the portion of the balance from the joint cards you each agreed to assume responsibility for. This will avoid the joint liability problem. This only works if there are no unidentified credit card balances not addressed. This also only works if your ex pays his/her share of what is allocated to her. If in doubt, you could pay his/her share and use the amount as an offset elsewhere in the settlement.

About the only exception to the credit card horror stories is if your ex-spouse-to-be forged your signature. You should not be held liable for these. However, the process of proving the forgery could be costly and draining.

Even if these charges should fairly be charged against the settlement your ex receives many people getting divorced have no assets. In the worst cases, the credit card debt could cause you to file bankruptcy.

Since your divorce is already in process, cancel all your credit cards to assure that they can't be abused.

Property settlements are not, unfortunately, only about dividing up assets. Debts must be considered. You, unlike many divorcing people, have realized this. Your property settlement negotiations present traps for joint debts which you must be careful to address. Debt management is vital. When husbands and wives borrow they generally do so jointly. Most assume if they owe a credit card company $10,000 they can each pay their respective $5,000 share and be all set. Not true. These debts almost always hold you and your ex jointly and severally liable. In the typical matrimonial settlement scenario one of the spouse's, often one spouse, assumes responsibility for the joint obligations. The responsible spouse would then pays these in lieu of some portion of the maintenance you would otherwise pay your ex. Alternatively, you may use your agreement to pay off certain debts as an offset to enable you to keep a particular asset. Thus, you are taking responsibility for what is technically a joint obligation of both you and your ex.

What happens if your ex-ex-spouse-to-be promised to pay a particular credit card bill of say $10,000. Then your ex-to-be remarries and has no money to pay it. Now, the credit card company contacts you to pay because your ex-spouse can't pay. Credit card company contacts you. You may still be liable even though your ex-spouse-to-be had expressly agreed to pay it. You may still be on the hook even though your ex-spouse-to-be had expressly indemnified you in the divorce agreement and assumed responsibility under the divorce agreement to pay it.

Your ex could file for bankruptcy if he/she cannot pay his/her bills. As part of this process your ex will list the credit card company under the listing of creditors as required under law. Your ex-spouse-to-be might go through a Chapter 7 bankruptcy and thereby be discharged from the obligations listed, including the $10,000 credit card debt, continuing our example. Your ex no longer legally owes the credit card company anything -- the credit card company can't come after your ex. They'll have to sue you and get a judgment if they want to collect anything. You waive the divorce agreement at the credit card company as your defense saying you're not responsible. Unfortunately, you may still be!

What can you do? There is a provision in the bankruptcy code which could enable you to assure that your ex remains liable by having that credit card debt excepted from discharge in bankruptcy. This way, your ex-spouse-to-be's obligation will remains live after the bankruptcy. You can get any debts which your ex agreed to pay in the written separation agreement excepted from bankruptcy discharge. On other hand, if your ex files for divorce before a written agreement is completed there is nothing that the you can do. You may want to ask your ex to sign the agreement before your ex can declare bankruptcy to avoid this.

Another approach is to require your ex-spouse to re-allocate debt between the two of you. For example, have your ex-spouse-to-be take out a loan or other advance and pay off the joint debts for which your ex-to-be is liable. If you are not a signer on this new debt, then you should be safe. This type of planning should be permitted under Section 523(a)(15) of the Title 11 of the Bankruptcy Code.

If there was a separation agreement and your ex filed a Chapter 7 bankruptcy, you could bring an "adversary proceeding" in the bankruptcy court to get a judgement to except particular debts from discharge. The bankruptcy court must go through a complex balancing test about who is more able to afford to pay the debt. This could include an analysis as to whom the court believes it would be the greatest burden to pay the debt, your or your ex. This proceeding must be brought within 60 days of the first meeting of creditors in the case. All creditors get notice, if the your ex-spouse-to-be files his/her attorney will list you because they want to discharge any obligations she has due to you. Your ex-spouse-to-be's promise to hold you harmless on certain debts is an obligation so you must be listed in her bankruptcy proceeding if she is to get relief from what your ex owes you.

If there is no written separation agreement the planning above won't work. What can you do? If there is no separation agreement --- everything is in joint name and your ex-spouse-to-be files for bankruptcy, there is no basis for your ex-spouse-to-be to discharge anything. There is no way to take advantage of this provision in the bankruptcy code. You have no remedies. Your only option is to pay the bill or perhaps for you to file bankruptcy yourself. This happens frequently. Many times there's is no alternative because there is not enough money to pay off the debts. Many times this happens for good reasons, catastrophic medical expense, loss of job, or it being to costly to maintain two homes. Most of these are really legitimate and are good faith last resort remedies.

Another option may be to allocate debt in way that it will get paid. Get it paid and the credit card problem is gone.

As with every financial issue in divorce, you need to retain and work with competent legal counsel, specialized in divorce. You should at least consult with an accountant and financial planner. Remember the laws differ substantially from state to state, and every divorce has its own unique nuances. Be careful.