Credit History, Credit Scores and Divorce
Credit Card Debt and Divorce: Who's Responsible?
Questions about how to handle outstanding credit card debt after a couple has divorced have become widespread. Even though some statistics actually show the divorce rate to be in decline in recent years1, the fact remains that many marriages do not last – leaving the former spouses to settle credit card debts and other financial matters. So how are credit matters – specifically, remaining balances on credit cards – supposed to be handled when a couple gets divorced? Not surprisingly, credit and divorce matters are far from an exact science. Yet, there are some solid guidelines available to help you distinguish between which credit card debts you are responsible for, which can be handled by your former spouse, and which credit card debts you must share – even after you're no longer married.
How do I know which credit card debts I'm responsible for once I'm divorced?
Banks, mortgage companies and other lending institutions understand that some marriages don't last forever. Financially speaking, "forever" is very much a relative term – given that many marriages do end in divorce, while many others end because one spouse dies. But since commercial financial institutions have a responsibility to their shareholders, someone must still be legally responsible for settling unpaid and active accounts. It's the same with credit card debts. Credit card companies are in business to make money, so someone has to pay off those outstanding balances.
The fact is, divorce is almost always about dividing assets and debts. So if you and your former spouse have credit debt, the financial burden usually lies with the person who opened the specific credit card account. The potential catch, though, is that while a fairly large percentage of married couples keep separate accounts – both bank and credit card accounts alike (some statistics show that about 48 percent of married couples keep separate accounts2) – many others open joint accounts instead.
The rules on joint accounts vary by state, but in most cases, marital debt includes any debt incurred during the marriage regardless of whose name actually appears on the title. So for joint accounts, whatever credit card debt you built up while still married, you will be at least partially responsible for those debts once you get divorced. Exceptions to these rules do exist, though – especially if one of the former spouses is solely responsible for most of the credit card activity. An extreme example of this might be credit card debt that's primarily due to one spouse's gambling habit. In such cases, a court may not consider that debt marital, and it will mandate that the responsible party pay the debt in full.2
If you're saddled with debts made primarily by your former spouse, you can use your credit report to document credit card activity – everything from when the account was opened to your specific credit debts on all accounts at the time of your separation or divorce. Once you've separated, consider keeping all of your non-marital debt independent of the debts you accumulated while you were still married. Think about opening up a new credit card after you've separated, and when possible, refrain from using any credit card that still carries marital debt. If you can close a joint account at the time of separation, make every effort to do so. This way, you can avoid a worst-case scenario – a situation where your ex-spouse continues to rack up debt in your name. You can protect yourself and get credit alerts by using a credit monitoring service.
Whatever the circumstances, make certain to pay all minimum payments on credit card accounts that bear your name. Failing to do that could compromise your credit score and adversely affect your credit history down the road.
How are financial statements analyzed in divorce cases?
Official divorce proceedings will involve financial statements. These financial statements are official documents that vary by state but will apply to anyone filing for divorce (as well as those involved in other civil cases, such as paternity suits and cases involving alimony and child support3). Depending on your annual income, you'll be asked to fill out either a short or a long form3 (again, rules vary by state, but in general, if your annual income exceeds $75,000, you must fill out the long form). These forms must include all of your financial information – all assets and debts, including credit card debts – and you must fill out these official financial statements for divorce truthfully and accurately, to the best of your ability. Failure to do so could result in criminal prosecution.
As mentioned, while extenuating circumstances can come into play, financially speaking, credit card and other divorce debts are a lot like marriage vows. Whether or not it was spoken during your wedding ceremony, the implicit vow "for richer or poorer" meant that you agreed to share in whatever debts you and your spouse accumulated during the course of your marriage.