Essential tips for dividing credit card debt in your divorce (2024)

The average US household has $7,104.00 in credit card debt. What do you think about that number? Are you surprised? Seems about right? I’m not surprised. Most of my divorce cases involve dividing credit card debt, some with balances a lot higher than the average.

Does credit card debt cause divorce? I don’t think it is the root cause, but money problems and lack of communication about money can. This is particularly true for the newly married. For example, a 2019 study found that 47% of couples that went into debt to pay for their wedding considered getting a divorce because of the resulting financial strain. Can you relate?

Has the Coronavirus caused you to go into debt such that it will push you and your spouse towards divorce? Or, were you already dividing credit card debt in your divorce case pre-COVID-19? Not sure how to handle dividing credit card debt in your property division? Don’t worry, I got you! In this article I’ll talk about:

• What is marital credit card debt;
• Tips to best prepare yourself for dividing credit card debt;
• Options for dividing credit card debt in your property division; and
• What to do if you don’t have enough money to divide credit card debt in your divorce.

What is marital credit card debt?

Do you think that your divorce will only be dividing credit card debt in joint names? Think again. Generally, any debts incurred during the marriage are marital debt, regardless of whose name is on the account.

Let me explain dividing credit card debt with an example.

I had a case years ago with a lovely client. His wife had 27 credit cards. I’m not exaggerating, she had 27 charge accounts. I didn’t even know some of these stores (i.e. Chadwick’s of Boston) had credit card accounts available! But they did. And she had them. And used them. So much so that it was the main reason for their divorce.

And what happened when we got to dividing the credit card debt? It got split up between my client and his soon to be ex. Sounds unfair? Yes, probably. But it was debt incurred during the marriage. So, even though my client does not shop at Chadwick’s of Boston, his wife’s debt from doing so was included in their property division.

So unfortunately, your spouse’s debt is going to be your problem (and burden) in your property division. However, instead of complaining about whether that is fair, it is better to take steps to prepare yourself for dividing credit card debt. How can you do that? Read on . . .

How should you prepare for dividing credit card debt if you have just separated from your spouse?

Did you and your spouse just decide to separate? Are you unsure as to how much credit card debt both of you have? Don’t worry, you aren’t alone. A lot of my clients have no clue how much their spouse owes on their credits cards. Some don’t even know what credit cards their partner has.

But don’t worry, I got you! In fact, I have a whole checklist for what to do if you have just separated from your spouse, credit cards and beyond! Here are some tips to best prepare yourself for dividing credit card debt in your divorce:

Obtain current statements for all credit cards

Do you have online accounts for everything? Yeah, me too. While going paperless is great for the environment, it can be an issue when you are gathering information about your marital estate. How so? Let me explain.

In order for you (or your lawyer) to evaluate the assets and debts to be divided in your divorce case, we need to know values or monies owed. And the best way to get that information to your lawyer is to get them the statements for all of your accounts, credit cards included.

However, online accounts don’t generally make years of statements available for download. That is why it is important to get those statements right when you separate so, if you need them six months from now, you won’t have to call or write the credit card company to get them, which could cause delay.

Get your credit report

When was the last time that you got your credit report? When you bought your house? Or got a car loan? Ever? One of the first things that I recommend to a client that is worried about dividing credit card debt is to get their credit report so that they know what debt accounts are actually out there. Why is this so important?

Well, most credit accounts can be applied for online. What if you spouse applied for a credit card in your name alone? And what if they didn’t tell you? You can’t deal with a problem that you don’t know about. So getting your credit report is a great way to clear up any unknowns.

Also, credit reports can contain errors. Do you want to keep the marital residence? Do you need to rent an apartment? Make sure that errors on your credit report don’t prevent you from doing either.

So where can you get your credit report? Companies like Credit Karma and Credit Sesame can provide you with a soft inquiry and basic information, while companies like Experian or TransUnion will provide you with a free copy of your full report.

I recommend that my clients start with a soft inquiry as it isn’t considered a hard inquiry such that it shows up on your report. Too many hard inquiries can hurt your score, something that you don’t want if you plan on applying for a mortgage or new credit after your divorce.

Research credit repair options

Is your credit in bad shape because of your impending divorce? Are you worried about the debt that you will have after your case is over? What if you want to buy a car, refinance your mortgage or rent an apartment? If so, check out creditrepair.com.

CreditRepair.com is a service that truly helps people achieve financial freedom. A low credit score can hold people back from low interest rates – in fact, it can even prevent people from being approved for a mortgage, car, credit cards or even a loan.

Everyday people trust the experts at CreditRepair.com because they offer a process that has been developed, refined and proven of many years and thousands of customers. Members will work with people who are not only experts in the credit repair field, but also experts at helping individuals meet their credit goals through a customized, powerful 3-step process. If you are worried about your credit, CreditRepair.com is a great place to start building it back up so you can have your best post divorce life!

Remove spouse as an authorized user from your credit cards

Is your spouse an authorized user on any of your credit cards? Not sure what this is? This means that while the account is in your name, he or she is allowed to use the account and likely has a companion credit card in their wallet.

If so, it is a good idea to remove them as an authorized user from all your accounts ASAP. Why? Because if they continue to use the card after separation, it could make dividing credit card debt a PIA. Was the debt marital? Was it not? Save yourself the headache and cut it off now.

Also, if the debt they incurred is in your name, the credit card company will come after you for payment, not them. Yes you can deal with this debt in the final property division (more about that below) but what if you don’t have the money to make the minimum payments now? What if they used up your outstanding credit? Again, avoid the issue by cutting them off.

Agree to stop using any joint credit cards

Most couples do not have joint credit cards. In fact, I don’t think that these kinds of joint accounts really happen much anymore. Do you have any joint credit cards?

I generally only see joint credit card accounts with my older clients who have been married for a long time and opened joint credit accounts long ago. Is this you? If so, don’t close the account right away. Instead, you and your spouse should agree to leave the account open, but stop using the card.

Why is this important?

Part of your credit score is calculated using the average age of your credit accounts. As such, closing your oldest account could reduce your score. Not something you want if you need credit to refinance your mortgage or buy a new car. Instead, wait until the need for that credit has passed and then close the card.

Dividing credit card debt in your property division?

Okay, so you’ve stopped the spending and got the credit card statements. You are ready for dividing credit card debt in your divorce. What should you do now? I have some suggestions. Are you surprised?

Option #1: Use marital funds to pay off credit card debt before dividing monies

Are you selling your marital home? Or, do you have a large savings account that needs to be divided? I’ve even seen clients use their retirement assets if their credit card debt is significant (however don’t forget the resulting tax consequences!). Instead of splitting up these assets first, use them to first pay off joint credit card debt, and then divide up the remaining monies.

I generally recommend this approach. This way, you and your spouse both go into your post-divorce life debt free! You each get a clean slate! What could be better?

However this doesn’t work if these accounts don’t have enough money or one or both parties need the house proceeds to buy a new one. What should you do then? See option #2 . . . .

Option #2: Dividing credit card debt by how it is titled

Generally, people with a lot of credit card debt don’t have a lot of assets. So, what should you do if you don’t have a large source of cash to pay off your credit card balances? What is the best way then for dividing credit card debt between you and your spouse?

In these cases, I simply assign the debt to the accountholder. It wouldn’t make sense to give debt held in one person’s name to the other spouse would it? No!

Then, after doing so, I adjust the division of assets (i.e. house, cash assets) such that the division of this credit card debt is fair. But what if you don’t have enough money to adjust this division of this credit card debt?

Options if you can’t pay off joint credit card debt in your divorce

Not all divorce cases involves cash, houses or other assets. Some simply just involve debt. Can you relate? So what do you do if there is simply not any monies to compensate the person who gets all the credit card debt in the divorce? In other words, what if dividing credit card debt means all the debt goes to one person?

These are probably the toughest cases. They require everyone (lawyers and the spouses) to think outside the box, especially if the credit card debt is held in only one parties’ name. Here are some things I have done in my cases for dividing credit card debt when there is not enough money to do it:

• Parties agree to each pay 1/2 of the minimum payment (or some other amount) each month until the credit card debt is satisfied;
• Have one client obtain a debt consolidation loan to pay off their share of the credit card debt;
• One party transfers their share of the debt to a credit card in their name alone via getting a new card or doing a balance transfer to an existing card; and/or
• One party pays a specific amount to the other per a schedule for their share of the debt (i.e. quarterly or annually).

While it isn’t ideal for a couple to stay financially tied together after divorce, sometimes there is no choice, particularly when it comes to dividing credit card debt.

So what tips should you keep in mind when dividing credit card debt in your divorce?

So are you preparing for dividing credit card debt in your divorce case? In doing so, keep these tips in mind:

• Understand what is marital credit card debt;
• Prepare by pulling your credit report, stopping usage of joint cards and getting your credit card statements;
• Explore using marital funds to pay off credit card debt in your property division; and
• Embrace creativity for dividing credit card debt when you don’t have enough monies to equitably split it up after you are divorced.

I know dividing credit card debt is no fun. But being prepared and getting creative is a great way to wipe the debt slate clean for your best post-divorce life!

What’s next on the Divorce Lawyer Life?

The Coronavirus has hit our global and personal economies hard. Were you already struggling with your finances?Are you racking up even more debt because of Coronavirus job loss? If so, paying for a divorce may be the last thing on your mind. But what if you still want to get divorced and have no clue how to pay for one? I’ve got some ideas. Hint: None of them involve using your Coronavirus Stimulus Check. I’ll give them to you next week.

Want to make sure that you don’t miss any of my tips and tricks for paying for your divorce and navigating the divorce process post-Coronavirus and beyond? Make sure that you sign up for my weekly newsletter where I recap the week’s articles and provide some additional promos and content just for my subscribers. You’ll get a FREE post-divorce checklist just for signing up!

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