Who Pays for the Credit Cards in a Divorce?

If you ask divorced people what led to their marriage ending, you will hear a lot of different answers. Maybe they were poor communicators. Maybe they knew the marriage was a mistake from the start. Maybe they simply drifted away from one another. But the one reason that pops up the most is money. Few things cause couples to fight more than money – specifically, how much they have vs. how much they owe – and the crux of these arguments is often related to credit card debt.

This is why a recent article published by The Ascent recommended that any couple about to walk down the aisle should discuss credit card debt before they say “I do,” and develop a plan to paying off that debt together. The advice is sound, because there are a lot of individuals and households overwhelmed by credit card debt. As of 2019, Americans owed more than $1 trillion in credit card debts, according to Debt.org. Per their research, “the average credit card holder has at least four cards [and] on average, each household with a credit card carries $8,398 in credit card debt.” That debt may belong to the household, which means it could be divided as part of the divorce.

How North Carolina’s equitable distribution rule affects debt

Equitable distribution aims to divide assets equitably, or fairly, but not necessarily equally. That same rule applies to debts: some will be equitably divided, and some will remain separate. If, for example, a married couple purchases a home together, then that mortgage is a marital debt, and can be subject to equitable distribution.

Credit cards, however, may follow a different path:

• If the couple opens the account together during the marriage, the debt is likely marital debt.
• If one person has a credit card in their sole name it might still be considered marital debt. North Carolina is not a “title” state, so it may not matter whose name is on the card as long as the card is used for marital purposes.
• If each person maintains separate credit cards that are paid from separate accounts that are not jointly owned, this is likely separate debt.
• If one person opens a “secret” credit card without the other spouse knowing about it, it may be considered separate OR marital debt, depending on the circumstances, such as what things the card is used to purchase.

Therefore, if you and your spouse opened a credit card at a local hardware store, or if you financed home improvements and they sent you a card with an open line of credit, you are both responsible for the debts you accrued. But if you have a credit card that you opened before you got married, and which is paid directly from an account which is only yours, then that debt will remain with you.

What happens if my spouse runs up credit card before the divorce is official?

North Carolina actually has three classifications for property: marital, separate, and divisible. Divisible property is what is accumulated between the day you separate and the day your divorce is final. If you have investments, for example, which accumulate interest during the process of your divorce, that interest is considered divisible property.

The same is typically true for debts. Thus, if one spouse runs up a joint credit card to its limit, you could be on the hook for paying your fair share of that debt, but not necessarily. This is why we often recommend to our clients that they close as many joint accounts as possible as soon as they separate. You will want to speak with your divorce attorney about how to avoid being responsible for those types of debts.

What happens if my spouse defaults on shared debts?

Defaulting on debts can have long-term repercussions. Remember that lenders do not care whether or not you get divorced; they only care about collecting the money they are owed. If your spouse is responsible for paying off a joint credit card, and he or she defaults on the payments, you could be held responsible for late fees and collections costs. You could also find that your credit score drops.

Will my credit card debt be eliminated if my spouse declares bankruptcy?

No, it will not. Bankruptcy will get rid of your spouse’s liability for the debt, but not yours. In fact, more often than not the creditor will begin to pursue you for the full amount of the debt. Further, if your spouse files for bankruptcy before your divorce is final, that bankruptcy could appear on your credit score, too.

How to deal with debts before your divorce is finalized

Asset and debt division can be a bone of contention even in the most amicable divorces, but it is always beneficial to reduce your debt footprint as soon as possible. You and your spouse can work out the plan yourselves, or with the help of your attorneys during mediation. If you cannot make the decisions on your own and mediation and negotiations fail, then a judge will make the determinations for you.

So – what can you do to make the process simpler?

1. Be honest with each other at every stage. If you wish to pay off the credit card with joint money, then tell your soon-to-be-ex about your plan.
2. Work with a financial advisor. If you do not already have a financial advisor, or if you are not working with one through your divorce attorney, then hire one on your own. Show him or her the plan that you and your spouse have worked out, so he or she can point out any potential flaws. Don’t skimp on valuation, either: you don’t want to pay more than you need to when it comes to reducing your debts, or lose out on money when it comes to dividing your assets.
3. Put everything in writing. Don’t make any oral agreements; make sure that everything is written down (even in email or text message) and agreed to by both parties. Give this documentation to your attorney as soon as possible.
4. Ask your attorney for help. After all, that’s why you hire us. We advise all of our clients about debt division and repayment, and how that can affect them, their businesses, and even their tax obligations.

Concerned about how credit card debt could affect your divorce? Epperson Law Group, PLLC can help you get on the right track. Please call 704-321-0031 or fill out our contact form to schedule a consultation with one of our experienced divorce attorneys in Charlotte, Boone, Concord, or Weddington.