Strategies for addressing credit card debt during divorce
Divorcing couples have to address numerous financial issues. Those with more assets tend to have a more challenging process ahead. They have to work out a way to share their most valuable property, such as investment accounts and home equity.
They also have to divide responsibility for their financial obligations. Many couples utilize credit cards to ensure that they have financial flexibility. Couples may carry balances when they have unexpected expenses or may accrue balances due to an imbalanced budget.
Usually, any credit card debt taken on during the marriage is subject to division under community property rules. How can spouses address credit cards when they divorce?
Validating the marital debt
The first step in allocating credit card debt involves verifying how much of the debt is marital and how much is separate. Account balances from before the marriage may remain the responsibility of one spouse after a divorce. In scenarios involving financial infidelity where one spouse lied about their debt or spending habits, the other could prevent the inclusion of secret credit cards in the marital estate.
Cases involving dissipation or wasteful spending can lead to the courts excluding certain debts. Credit card balances associated with extramarital affairs may also be separate from the marital estate. Once spouses determine how much debt they have to address, they can then consider their options.
Creating workable solutions
Factors including the total amount of debt and the income of both spouses can influence the best solutions for credit card debt. In some cases, it is clear that one spouse can carry more of the debt after the divorce while the other may not have the income to make large credit card payments.
Other times, each spouse might assume responsibility for certain accounts. Either of those arrangements can lead to a degree of vulnerability. If a spouse who takes responsibility for a credit card defaults, files for bankruptcy or dies, the other spouse may ultimately be responsible for paying those debts.
Another option that can eliminate future financial responsibility is the use of marital assets to pay off credit card debts. Spouses liquidate financial accounts or withdraw home equity as a means of eliminating marital debt so that neither spouse has ongoing financial obligations after the divorce. Such arrangements can eliminate the possibility of defaults and financial manipulation after the divorce.
Factors ranging from earning potential and age to child custody arrangements can influence the best way to address credit card balances during a high-asset divorce. Reviewing household finances carefully with a skilled legal team can help people establish workable plans for their credit card debt.
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