If you are like most couples, you have some considerable credit card debt on your accounts. This type of debt can create some headaches when a couple divorces, since the debt must be assigned to either the husband or the wife in the divorce settlement. If you are able to pay off some or all of that debt before you divorce, you will be taking at least one potential issue off the table, but if not, it will have to be dealt with before your final divorce decree is handed down. Read on to learn more about how this type of debt is divided upon a divorce.
Your state laws
Divorce, and the regulations that define it, can vary depending on your state of residence. Nearly every state now follows the equitable distribution model of dividing debt and property, but there are a few states that stand by the community property model. The way credit card debt and a lot of other things are regulated in a divorce proceeding depends on what model is followed, so here's a short explanation of each type.
1. Equitable distribution states look at marital property and debt as belonging to each party individually; in other words it belongs to the owner.
2. Community property states look at martial property and debt as belonging to the "community"; in this instance the community is the divorcing couple who both own the debt equally.
Equitable distribution and credit card debt
Here, the person who opened the account is responsible for paying off the debt, so if the husband owes Visa $1,000, he is solely responsible for paying that debt. This is true even if he used the Visa card to pay joint debts or to purchase property that is now considered joint property. If the wife was provided with her own card to use to charge things on that account, it is still considered to be the responsibility of the owner of the account, and she is not obligated in any way for the debt.
When it comes jointly-held debts, it can get a lot more complicated. While joint credit cards are not as common as they used to be, some couples do have accounts with both of their names on them. If the couple cannot agree among themselves about how to divide the debt, the burden may either be split right down the middle or a forensic accountant will be brought in to determine who is responsible for which charges.
Community property and credit card debt
This lesser-used model looks at the couple as one unit, and all debt and all property is considered to be owned equally by both parties. Since both people own the credit card debt, the debt is often simply split down the middle, with both people paying 50% of the obligation. This is true regardless of who opened the account, whose name was on the account, or what was purchased on the account. If you live in a community property state and are divorcing, you will have to pay for half the total burden. This means that having a free-spending spouse could cause you financial problems with divorce.
Talk with your divorce attorney for more information.