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3 considerations when dividing credit card debt in a divorce

On Behalf of | May 1, 2023 | Divorce

After years of combining their finances and sharing a home, there can be a lot of work involved in separating the lives of divorcing spouses. Frequently, people focus too much on negotiating their assets and not enough on considering their shared financial obligations.

Credit card debt can be a major challenge for some families as they attempt to negotiate a divorce settlement. What do divorcing couples need to consider when attempting to address their existing credit card balances?

1. How much is marital debt

As a general rule, most debts that couples take on during the marriage will be subject to division if they divorce. However, there are some debts that might not be part of the marital estate. Amounts owed prior to marriage would remain separate debts in the event of a divorce. In some cases, one spouse could ask to exclude certain obligations from the property division process because they allege that there was dissipation of marital resources. Debts that people take on to diminish the value of the marital estates or as part of an extramarital affair might not be debt the spouses have to share in the divorce.

2. How to divide the debt

A 50/50 division of certain assets is often the goal, but that may not be the right way to handle debts owed by divorcing couples. Having each spouse assume control of specific accounts is a common approach. One spouse could keep more marital property and also more debt because they have more income than the other spouse. It can often be a really significant challenge to find an arrangement for repaying the debts that both spouses agree is appropriate.

3. How to reduce the risk of someone defaulting after divorce

Especially if both spouses signed for the credit card originally, they are both responsible for the balance owed until the amount due reaches zero. Even if there is a family court order making it clear that one spouse is responsible for certain debts, there is no guarantee that they will follow through without missing payments and potentially harming the other borrower’s credit. If they default or file for bankruptcy, the spouse who theoretically has no responsibility for the debt could end up facing collection activity and taking a hit on their credit report.

People who understand the challenges that credit card debt will cause typically may have an easier time negotiating arrangements that will be fair and will minimize their risk during and after their divorce.