credit card debt and divorce
TRANSCRIPT
The most important thing to remember about credit card debt and divorce is that credit card companies ARE NOT bound by divorce agreements. Divorce is generally not a knee-jerk decision. People who get divorced have generally spent quite a bit of time thinking about it. Unfortunately, they usually aren’t thinking about the more granular details.
What do most people think about when contemplating divorce? Generally it’s focused upon the unhappiness with their marriage that leads them to consider divorce in the first place. That unhappiness can come from a lot of different sources and be unique to each individual. Infidelity, disrespect, fighting, money issues, parenting issues, bad behavior, inability to work together, loss of attraction, missing the single life and general misery are all reasons people cite for ending their marriages.
Most people realize that there will be a division of assets and custody issues if there are children involved and somewhere in the periphery, they realize that there will be more complex issues to address but initially, it’s primarily an emotional decision. As we all know, emotional decisions are generally not made wisely but by its very nature, when making the decision to divorce, emotion is unavoidable. We’ve been in business for over 20 years now and we’ve seen some pretty unfortunate emotional decisions made over those years which have lead us to have no qualms about our insistence that having an attorney to be your voice of reason and guide the process is essential in obtaining the best outcome possible.
A big irony of divorce is that no matter how much thought you have put into your decision to file for it, the choice of when to pull the trigger is often extremely spur of the moment. It often happens after a lot of thought and contemplation that in a way, amounts to “psyching yourself up” for the big moment. Most people who propose marriage usually put a lot of planning into creating the perfect moment but on the other side of the mountain when they are considering divorce, the moment tends to present itself with no planning whatsoever. It’s usually that final straw or indignity when you realize you’ve had enough and you’re not gonna’ take it anymore! It’s also probably fair to say that most people haven’t fully committed or made a final decision before that moment arrives but when it does, they are often hard pressed to remember why they ever wanted to be with that person in the first place.
If that all sounds a bit “bi-polar” we think it’s an accurate illustration of the emotions you encounter in the initial stages of your divorce. We realize that most people are not going to do it much differently than this but we still implore everyone to talk to an attorney beforehand to make plans and strategize. The reality is that if you do that, you will save yourself a lot of heartache and unhappiness in the long run. Let’s drill down into the aspect of that being primarily addressed in this article.
If you file for divorce and you have any shared credit card debt with your spouse, in the state of California, you are equally liable for paying it off. Remember that CA is a “community property” state. That also means that if you haven’t planned in advance, your soon to be ex could go on a “spite-spending-spree” with your joint credit cards. That may hurt them as well but it will definitely hurt you and as we mentioned, any decisions relating to divorce can be emotional and therefore, irrational. Financial experts highly recommend that you pay off and close joint credit accounts before filing for divorce and we wholeheartedly agree!
Even worse is if you are the account holder and you have gotten your soon-to-be-ex a card with their name on it but they have no responsibility for the account. We’ll refer you back to the first sentence in the first paragraph of this post for the answer as to “why?” Since CA is a community property state, you may be responsible for only half the debt if it was incurred for the sake of the marriage but so far as the credit card company is concerned, if your spouse stops paying their court ordered share, it’s back on you. If you can leave your marriage with no joint debt at all, that would be optimal but if you are having to triage your debt priorities, paying off and shutting down any accounts that can still be drawn from is priority number one.
If you cancel those joint accounts and put them in your name, you are taking responsibility for any future spending but blocking your spouse from using them. The debt can be divided up during the “equitable distribution” part of the settlement but again, remember that if your name is on the account and your ex doesn’t follow the terms of the agreement, you’re still on the hook for the money. The financial agreement is between you and the lender. The court is only a middleman. More specifically, they’re a middleman for whom you have to pay money every time you interact with them. They can compel your ex to hold up their end of the agreement but that might take time and in the interim, it’s your credit being wrecked and your responsibility to pay the bill. In addition, if you file for a legal separation, it is very important to file documentation with the court regarding your joint accounts and debt to protect yourself. This can help prevent any bad decisions on the part of your spouse from impacting you.
If you have equity in a jointly owned home, it’s not a bad idea to take a loan against that equity to pay off other accounts, particularly if you are likely to sell the home and split the assets. It’s best to walk away as cleanly as possible for your fresh start. Depending upon how bad your situation is, sometimes bankruptcy is a consideration.
Hopefully this article gives you a few things to think about if you’re contemplating divorce. Our hope is to catch as many people as we can before they plow headfirst into a financial hurricane without taking any precautions. Please be as thoughtful and rational as you can and as always, consult with an experienced attorney. They’re not cheap but they’re cheaper than regret.
