Divorce brings numerous challenges, including emotional turmoil, financial uncertainty, housing decisions, and changes in social connections. While the division of assets and debt is common in divorce, understanding the intricate details of consumer debt can reveal complexities that may seem straightforward at first glance.

Key Considerations for Credit Card Debt in Divorce

Liability for Credit Card Debt Understanding your liability for credit card debt during divorce depends on several factors:

  1. Whether you live in a common law or community property state.
  2. Whether the debt is for a joint credit card.
  3. Who the debt is assigned to in the divorce.

Credit Card Liability in Common Law States Most states follow common law rules for dividing property and debt in a divorce, known as common law or equitable distribution states. In these states, you are generally liable for debts in your name. If you took out a credit card in your name or cosigned it, you remain liable for the debt. This means you can be held responsible for all individual or joint credit card debts as long as your name is on the account. However, you are typically not liable for credit card debt solely in your spouse’s name.

Special Rules for Community Property States In community property states, most debts incurred by either spouse during the marriage are considered community debts. Both spouses are equally liable for community debts, even if only one spouse incurred the debt. If the credit card was used for the marital community's benefit, it will likely be considered a community debt. Conversely, if one spouse used a credit card for personal expenses, it might not be considered a community debt.

Debt Assignment in Divorce Credit card companies are not bound by divorce decrees or family court orders assigning debt to a specific spouse. If a debt was assigned to one spouse in the divorce, the other spouse remains liable if their name is on the account or if it is a community debt. However, if one spouse is ordered to pay a credit card debt but fails to do so, the other spouse may seek reimbursement or damages from the ex-spouse.

Managing Credit During Divorce

Credit Reports and Financial Problems Divorced couples often face financial issues when an ex-spouse makes late payments on shared accounts. These late payments appear on both account holders’ credit reports. To avoid such issues, divorced couples should close or refinance all shared accounts.

Tips for Managing Shared Accounts

  1. Set Up Online Accounts: This allows both parties to monitor payment status and avoid late payments.
  2. Automatic Payments: Encourage automatic payments to ensure bills are paid on time.
  3. Close or Refinance Accounts: Close or refinance shared credit cards, loans, and mortgages to avoid joint responsibility.

Special Note for Women

Women often face unique challenges in maintaining good credit histories. Married, separated, divorced, and widowed women may lose their credit histories when they change their names or if creditors reported accounts in the husband’s name only. Women should contact credit reporting companies to ensure all relevant bill payment information is in their names.

Why Involve a Certified Divorce Lending Professional (CDLP®)

Divorce Mortgage Planning Divorce Mortgage Planning is a holistic approach to evaluating mortgage options within the context of overall financial objectives related to divorce. Working with a CDLP® ensures that the mortgage selected aligns with long and short-term financial and investment goals, minimizing taxes and interest expenses while maximizing cash flow.

Early Involvement of a CDLP® Involving a Certified Divorce Lending Professional (CDLP®) early in the divorce settlement process helps set the stage for successful mortgage financing in the future.

Conclusion

Understanding the complexities of credit card debt and managing credit during divorce is crucial. Involving a CDLP® can help divorcing homeowners make informed decisions about their home equity solutions and navigate potential conflicts between the divorce settlement, home equity solutions, and real property issues.

This information is for informational purposes only and not for providing legal or tax advice. Contact an attorney or tax professional for legal and tax advice. Interest rates and fees are estimates provided for informational purposes only and are subject to market changes. This is not a commitment to lend. Rates change daily—call for current quotations. The information in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes.

Copyright 2022—All Rights Divorce Lending Association

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