The treatment of credit cards in divorce can have a long-term impact on both parties’ finances. The disposition of credit card debt deserves special attention in marriage dissolution, especially during the planning phase. When two people marry without a prenup, they entangle their finances in ways that takes expertise to resolve correctly. This can be a source of contention, especially if debts were accumulated in a community property state like Texas. The treatment of credit cards in divorce can have a long-term impact on both parties’ finances. The disposition of credit card debt deserves special attention in marriage dissolution, especially during the planning phase. When two people marry without a prenup, they entangle their finances in ways that takes expertise to resolve correctly. This can be a source of contention, especially if debts were accumulated in a community property state like Texas.
A divorce judge cannot change the name(s) on the signature line.
A divorce decree may order community assets sold to pay off a credit card. A Judge might order one spouse to pay the debt of the other. The judge cannot order a credit card company to release one spouse from a debt or impose direct liability on the other. If one spouse applied for a credit card, that spouse is liable to the credit card company. The arrangement between spouses is separate.
Most credit cards are issued to one party, who is then responsible for the debt, and may give another authority to use the card. The authorized user has full authority to charge to the limit of the card, and no liability to pay for it. It can be the ultimate gift. Often, one spouse applies for a card and checks a box making the other an authorized user. That is not a joint card. One spouse is liable, and the other may charge without being directly liable to the credit card company.
Texas Family Code §2.501
§2.501 of the Texas Family code says:
“(a) Each spouse has the duty to support the other spouse.”
This allows a judge to order one spouse to pay the debt of the other or sell community assets to pay the debt of one spouse, including credit cards.
How Best to Deal with Credit Cards in divorce?
There are different ways to deal with credit cards. The best depends on whether you are the one who applied for the card(s), or an authorized user.
1. Sell community asset(s)
Frequently, if real property is being sold, the divorce decree will require debt to be paid before the money is divided. It’s common to include a provision directing the title company to pay credit cards before dividing the money from the sale of the house. This can mean paying off entire balances, or paying some amount toward the balance. This is often the best option.
2. Order a spouse to pay the other’s debt after marriage.
A spouse may agree to pay the other’s debt after the divorce, either in a lump sum by a due date, or in periodic payments, e.g. monthly. A judge has authority to order this if it’s not agreed. This is not a good option. It does not change the arrangement with the credit card company. If the payments are late, it is reported negatively against the person who took on the debt. The one who agreed, or was ordered, to make the payments is not affected. Enforcing the provision requires a return to court, with additional legal fees. Occasionally, if there is sufficient leverage on both sides the ex-spouse will pay the debt because of potential negative consequences elsewhere.
3. Assign the Credit Card Debt to the one who requested the card & offset it with assets or other debt.
Depending on finances, resources, and budget, the spouse who signed for the debt might take full responsibility for it and receive additional assets to offset the debt. Or the other spouse might receive other debt.
What Factors Affect How Credit Card Debt is Assigned in Divorce?
1. Is the Debt Joint?
If both spouses applied for the credit card and agreed to be responsible for the debt, it is a joint debt. This means each agreed with the credit card company to be liable when the card was applied for. It does not include agreements only between spouses. Basically, both must have signed the dotted line, even if that line is a check mark on a digital form. Late payments, and non-payment, of a joint debt will negatively affect each person’s credit report after divorce.
2. The purpose of the debt
If the debt benefitted the community estate, it will likely be subject to one of the above options. Sometimes, the balance can be attributed to a specific item or event like a vacation, home improvement, or furniture purchase. Other times it cannot, but each spouse agrees it generally benefitted the community estate.
If the debt was incurred inappropriately, like paying for an affair or illicit gambling, it will be left to the debtor spouse to pay it.
3. Relative Incomes of the Spouses
If one spouse earns substantially more than the other, the higher earner might be assigned the debt incurred by that person, even if it benefitted the community estate.
4. Division of the Community Estate
A spouse might be awarded a disproportionate share of assets to offset a disproportionate share of debt. A marital residence could be awarded 100% to one spouse, along with more of the credit card debt, with the assumption the house could be sold to pay the credit cards.
Ending a marriage without a prenup or postnup is a complex process with major financial implications. Among them is the treatment of credit. Debt is not forgotten after the marriage is over, and it’s essential that both sides seek counsel from an experienced attorney to ensure their finances are secure.