While dealing with the emotional toll of divorce is challenging, it can be even harder to to understand how debts are divided up between you and your spouse.
Since credit cards have sky-high interest rates and debt can build up quickly, it’s important to know how debt is divvied up between spouses in the event of a divorce. There are many factors, such as what state you reside in and whose name is on the credit card, that may affect who’s responsible for paying off debt.
Legal Considerations
Typically, you won’t be responsible for your spouse’s credit card debt if they accrued it before you got married, as long as you’re not a co-signer or joint account holder on the account.
However, debt you or your spouse accumulates during your marriage is considered marital debt, which you can be responsible for depending on what state you live in and how the Court views the debts.
This is because states have different laws regarding the division of debts. There are two legal frameworks that a state may use to determine who, in a marriage, owes debt after a divorce: common law or community property.
Common Law States
Most states are common law states, with 41 states using the common law framework, also known as equitable distribution. In states that have equitable distribution laws, assets and debts are divided fairly—although, not necessarily equally.
Typically, in common law states, only the person whose name is on the credit card debt is liable for paying it off.
Yet if both of you and your spouse’s name are listed on the card, as co-signers or joint credit card account holders, it’s considered joint debt and both of you are responsible for it. That’s because when credit card issuers approve two borrowers for a card, they’ll look at both of your credit scores and incomes to figure out whether to extend credit to you and your spouse.
Additionally, in some states, if debt is taken out by one spouse to pay for necessary expenses in the marriage—like food, medical costs, and childcare—then both spouses may be liable for the debt incurred.
And if someone is an authorized user on their spouse’s card, only the primary cardholder is liable for paying the debt. Note that if someone is an authorized user on a spouse’s credit card and the spouse fails to pay off their debt, it could impact the authorized user’s credit score.
If needed, you can call the credit card issuer and request to be removed as an authorized user or remove an authorized user on your account.
Community Property States
Only a minority of states follow a common property framework.
There are 9 states have community property laws:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
In these states, debt that was incurred during the marriage is generally evenly divided between spouses, regardless of who’s name is on it. That means that even if your spouse racks up debt under their own name, you’d be on the hook for half of it.
Similarly, if you’re a joint account holder or cosigner on a credit card, you and your spouse are each responsible for 50% of the debt.
Factors Influencing Responsibility
Although what state you live in is one of the most important factors affecting your financial liability when it comes to credit card debt, whether you and your spouse have a prenup or postnup is typically even more important than what state both of you live in.
Signed Agreements
A prenuptial agreement is a contract between a couple that’s made before marriage. With a prenup, couples can determine how they would divide assets and debts between themselves in the event of a divorce.
A postnuptial agreement is similar to prenup—the big difference is that couples enter into a postnuptial agreement after marriage.
By having a prenup or postnup, you and your future spouse can choose how past and future assets and debts are divided, without the state deciding who’s responsible. Additionally, a prenuptial agreement can be especially helpful for couples who live in community property states where any assets or liabilities acquired during marriage are split evenly.
In other words, you can use a prenuptial or postnuptial agreement to override your state’s laws. This allows couples to choose how they want to allocate their assets and debt responsibilities privately.
Judges’ Discretion
In divorce proceedings, a judge can weigh in on issues like child support and custody, spousal support, and the allocation of assets and debts between you and your ex-spouse.
If you can’t reach an agreement with your spouse, a judge will typically adhere to the state’s laws, unless there’s a prenup or postnup.
And while a judge can assign your spouse the responsibility of paying off a debt in a divorce decree (an official court agreement that ends your marriage and details the terms of it), creditors can still try to collect a debt from you if you’re listed as a borrower on the account.
Strategies for Protecting Yourself
In order to protect yourself financially in a divorce, it’s important to take stock of your assets and liabilities, whether it’s your retirement nest egg, investments, car loans, or student loan debt.
Creating a Financial Inventory
During a divorce, you’ll want to document all the debts and assets you acquired during the marriage and that you had before. Debt that either of you had before the marriage is separate debt. Typically, separate debt that is incurred before the marriage is the responsibility of the initial borrower.
You’ll want to document some of the following types of debt:
- Credit card
- Auto loans
- Personal loans
- Student loans
- Medical bills
Impact on Credit Score
While getting a divorce has no direct impact on your credit score, if your name is listed on a line of credit and you fail to make payments on time and in full, it can negatively influence your credit score.
Furthermore, collection agencies can also pursue a debt if you and your ex-spouse’s names are listed jointly on a debt even if you’re not liable for the debt according to the divorce agreement.
Since credit card issuers and credit reporting agencies aren’t privy to the details of your divorce, any missed or late payments, whether they’re technically your responsibility or not, will be reflected on your credit reports and scores if you’re listed as joint credit card holder.
Seeking Legal Advice
Navigating a divorce can be difficult. A lawyer can help you figure out how to split up your debt and negotiate child custody, among other things. While it’s possible to get a divorce without the consultation of a lawyer, an attorney can help you better understand the nuances of prenup, postnups, and your state’s laws.
Conclusion
Divorces can be stressful, emotionally taxing, and confusing. They can also have a significant impact on your personal finances—for better or for worse. With the help of the Tayne Law Group, you can make sure you’re not responsible for credit card debt you shouldn’t be.
Call (866) 890-7337 or fill out our short contact form for a free consultation and learn about your options.
