How to Handle Joint Debt and Protect Credit During Divorce

Couples frequently use joint credit card accounts to pay bills, combine accounts, and accrue rewards points. Authorized user accounts limit the amount an authorized user can charge to the card, and only the account holder is responsible for the debt. But adding someone as an authorized user is very different from having a joint credit card account. Joint accounts mean that both parties are responsible for the debt, even if only one person used the card. So, how is debt handled during a divorce, then?

Here are a few things to consider if you intend to sort out joint credit card debt during a divorce. Remember that divorce might affects your finances and credit score. For legal counsel and answers to any state-specific inquiries you may have, it is preferable to speak with a qualified attorney.

How can joint credit card debt affect your credit?

Divorce can turn ugly if your ex-spouse wants to hurt you financially. For instance, your ex-spouse may intentionally stop making payments on joint credit card debt to pull your credit. At such times, you will be in a problem because creditors won't be interested in listening to your sad story. They want money and payments. If your ex-spouse doesn't pay money, creditors will run after you for payments. They will report to credit reporting agencies, which will list negative items on your credit report. Now, you have to find a solution to this problem.

Delinquent credit card accounts will pull down your credit score. Missing a payment might hurt your credit score because timely payments are the main element determining your credit score. If your credit is otherwise perfect, a payment over 30 days overdue might lower your score by as much as 100 points. It won't harm your score as much if it's already low, but it will still cause harm.

If your ex-spouse is not ready to cooperate, you can opt for debt consolidation with bad credit to repay your creditors. But in that case, you must make monthly payments on the debt consolidation loan until it is paid off. Your ex-spouse is less likely to come to your aid.

Steps you can take to handle joint debt and protect credit

1. Check out the state laws

During the discovery stage of a divorce case, debt is usually discovered. Both parties are expected to produce a statement of net worth, which lists their assets and obligations, during this period. Each attorney receives these statements and reviews the liabilities to determine their client's liabilities.

Each state's divorce rules determine who is accountable for shared credit card debt. Courts apply two bodies of law to decide how debt is distributed: common law and community property law.

The majority of the nation's states adhere to common law. The court will hold a person accountable under this provision for any debt that is entirely in their name as well as any shared debt for which they were an authorized user.

Community law is used in nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. According to this rule, both parties are responsible for paying any debt incurred during a marriage. This means the other spouse is equally liable for the debt even if one spouse used their credit card for $5,000 without the other's consent.

Debt accumulated after the divorce announcement to support an extramarital relationship, gambling addictions, or extravagant spending will not be pretty divided. In some circumstances, the debt is regarded as wasteful and will be entirely borne by the person who made the purchases.

2. Remove the authorized user or use a balance transfer card

People concerned that their money will suffer due to an upcoming divorce should take steps to safeguard themselves.

You may take action to keep it under control, whether it's setting spending restrictions or removing them as an authorized user.

You can remove an authorized user from a credit card account by contacting the credit card provider directly. Spending restrictions can be placed on the authorized account if the account holder feels more at ease leaving it open and not giving away any symptoms of an imminent divorce. You can do this with the credit card company over the phone or online.

However, it is more difficult to remove the additional user if the credit card is a joint account. After paying the entire sum, the credit card company will probably demand that you shut the account entirely, and they will need both of your signatures to do so. Consider shifting the money to a balance transfer card in just one person's name if you don't have money to pay off the balance in full.

In the end, divorce is nearly always a time-consuming and stressful procedure. Consumers can still take precautions to safeguard themselves from the reckless actions of their new ex, even if a judge directs the division of joint debt.

3. Read the divorce decree

After the discovery phase, lawyers bargain to decide who will pay particular debts during the divorce process. Whatever is determined will be included in the final divorce decree, a binding legal record summarizing the agreements reached during the legal procedure.

Regardless of the state's legal system, a judge may order someone to pay back a portion of a debt that isn't their responsibility. The person whose debt the name is under will theoretically remain liable for the debt in the eyes of the creditors if that is the case.

There are ways to defend the person who isn't responsible for the debt (according to the divorce decree). But according to experts, creditors won't always adhere to those tactics.

A provision can be incorporated into a divorce agreement that indemnifies the other party and keeps them harmless. You can use certain protective wording, but that won't stop the bank from taking legal action against the other party.

Someone who was not ordered to pay a debt in their name may end up suing the other party for non-payment if the creditors do not abide by the terms of the divorce ruling and pursue them. Although this is a drastic action, it can be required to protect a credit score after a person misses payments.

Bottom line

Make sure your spouse cannot access your financial information by taking the necessary precautions. Change the passwords on all your bank account websites, the PINs on your debit cards, and make sure that your ex-partner can't simply figure out the answers to your security questions. If you've already moved out, update your address with creditors and financial organizations. This will not only guarantee that crucial information reaches the appropriate person but also give an extra degree of protection against your ex-spying.

Although it may seem absurd to think that your ex-spouse would attempt to harm your money after a divorce, it's better to be cautious than sorry. These actions will aid in your financial security and a fresh start.

Author’s Bio:

This guest post was written by Lyle Solomon. Lyle has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of the State Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for the Oak View Law Group in California. He has contributed to publications such as Entrepreneur, All Business, US Chamber, Finance Magnates, Next Avenue, and many more.