If you’re considering a divorce, you may be thinking about all the things you have to split, from the bank accounts to the vinyl record collection to custody of the dog.
One thing you probably won’t demand is yours? The accumulated credit card debt. But you’ll need to divvy up credit card debt in divorce, too.
But what if you can’t agree on who owes what?
What if your soon-to-be ex was the one racking up the purchases?
What if all the credit was in your ex-spouse’s name and now you have to start rebuilding your credit along with the rest of your life?
First, don’t panic and rush into a decision. Considering approximately half of all marriages end in divorce and credit card balances clocked in at $868 billion for the second quarter of 2019, you are not the first person to deal with debt and divorce.
Avoiding the accumulation of additional debt should be among your first priorities, since divorce itself is an expense (think paying legal fees, furnishing a second household and splurging on a pick-me-up treat).
We don’t have all the answers to navigating the treacherous legal waters of divorce, but we do have simple ways to make smart money decisions so you can divide up old debt, avoid accumulating more debt and get on with your post-divorce life.
How to Deal With Credit Card Debt in Divorce
When it comes to debt and divorce, ideally you’d both agree on what belongs to each person. But then again, if you lived in an ideal world, you probably wouldn’t be getting a divorce.
The main thing to remember is that you are responsible for any debt in your name. So, regardless of who made the purchase, if the credit card has your name on it, the lender will come after you.
When it comes to co-owned debt, the laws on ownership vary by state. If you live in a common law state, you may only be held responsible for cards that are in both your names. But in community property states, the courts may decide any debt you’ve accumulated before the divorce is both of yours. Consult your state’s laws and legal counsel before making any decisions.
But at an emotional time like a divorce, it’s easy to get overwhelmed and find yourself either paying off your ex’s debt just to be rid of it or facing a mountain of legal fees.
Here’s some practical, money-saving tips for dealing with debt during a divorce.
Deal With as Much Debt as You Can Before You File for Divorce
It may be painful, but consider settling what you can about your financial situation before you file for divorce.
Yes, you can wait for a court to dictate how to divide the debt evenly. However, if you’re already facing credit card debt, you can save yourself from the extra debt you’ll accumulate from the court costs by making decisions prior to filing. (Go ahead and use that as a selling point if your ex balks at discussions.)
“Once you file for divorce, there’s a lot of rules around what kinds of changes you can make to your accounts, especially if they’re joint assets or joint debts that you have together,” said Ariel Ward, Certified Financial Planner at Abacus Wealth Partners.
If you have jointly owned assets, like a house, a credit card company can go after your spouse’s interest in the property — even if your name isn’t on the credit card.
Meeting to decide who is going to accept which debts and who is going to pay can be a painful process, so consider meeting in a neutral place — and a public one, if there’s a chance it could turn ugly — to discuss exactly what the two of you owe.
If you both have your own credit cards, Ward recommends removing each other as authorized users on the cards — it typically only takes a call to your credit card company.
If you have joint accounts, now’s the time to transfer them to cards that you take out separately — it could be a good opportunity to look for a balance transfer credit card with a low-interest offer.
Ward also stresses that even amid the rancor of a divorce, you can save hundreds or even thousands in legal fees by avoiding petty arguments over smaller bills.
Should You Consider Bankruptcy?
Although it may seem like an attractive option — declare bankruptcy so you don’t have to think about the debt you racked up during your marriage — making a rash decision could end up haunting you.
Kelly White, a social worker from New Hampshire and a TPH Community member, separated from her now ex-husband in 2009. They chose to delay filing for divorce when she found out she had cancer and needed to retain his insurance, but they continued incurring the costs of separation.
“We were maintaining those two separate households while I was sick, and [then] I was unable to continue doing my job,” she said. “At that point, we decided to declare bankruptcy before the divorce.”
Although it provided a temporary reprieve from dealing with her ex in regards to their debt, White said she wishes she had considered options other than a bankruptcy and its long-lasting consequences.
“I wanted to be done with this — were I to do it again, I’d do it differently,” she said. “But at that point, even my few thousand dollars in credit card debt seemed overwhelming.”
The hit that your credit score will take from bankruptcy could also endanger your post-divorce life, leaving you unable to get approved for a loan or pass a credit check. White said she ended up having to ask a friend to front her the money for an apartment.
The flip side — and another reason to sort out your credit cards before the divorce — is that your ex could file for bankruptcy and leave you with their liabilities on joint accounts, according to Ward.
“Your ex-spouse could file for bankruptcy post-divorce and then potentially have his liability or her liability wiped out if you have joint credit together,” she said. “Then you still have your liability plus theirs.
“It’s in your best interest to work it out beforehand so that you don’t end up with all the debt on your name.”
Continue Dealing With Your Finances… or Catch Up
Divorce can be emotionally and psychologically taxing, but you’ll thank yourself later if you can maintain some financial stability.
That’s often easier said than done.
“When I first moved out and I was sick and I was out of work, I just threw all my bills in a drawer,” White said. “And you know that’s a bad idea, but I couldn’t even open them… I went for like three months of doing that.
“I paid my rent, I paid my electricity, but that was about it.”
“Were I to do it again, I’d do it differently. But at that point, even my few thousand dollars in credit card debt seemed overwhelming.” — Kelly White
After White recovered, she knew she needed to get back to reality.
“I had to call all of my creditors, college student loan people, the car and just pull myself out of that,” she said. “I figured out what I owed everybody and just started paying.”
Although the period immediately after a divorce may be tough, calling your creditors before you start missing bills could help your financial situation and save your credit, according to Ward.
“The big thing with your credit card companies and any other debt you have is it doesn’t hurt to make a phone call,” she said. “See if they can work with you and on a temporary basis — or maybe a long-term basis — to reduce the interest rate [or] have a temporary smaller payment for a short period of time.”
Ward recommended writing down all of your assets and debts post-divorce so you can physically see where your money is going — and where it needs to go. For more budgeting ideas, check out these tips for managing your money after going from two incomes to one.
If You’re Still Paying Off Your Ex’s Debt
What if you only learn about all the debt your ex racked up after the fact? Unfortunately, taking responsibility for your ex’s debt may be unavoidable if the credit card company has your name attached to the loan.
“While your name is on the loan, you do need to make payments,” said Ward, who noted that if you are unable to get verification that your ex did remove your name from a credit card that wasn’t yours, you may need to get lawyers involved. “You also have to prove that you did not know that your name was on the loan and you didn’t benefit from that loan.”
And even you can get your ex to agree to pay for part of the loan — whether on your own or due to the divorce decree — keep detailed records of the payments to protect your credit from unwanted surprises.
“Just because the divorce agreement that says your ex is going to pay part of that debt, you need to make sure that’s actually happening and if it’s not, your credit score is going to be the one affected and your credit history will reflect that,” Ward said.
How to Build a Debt-Free Life Post-Divorce
If you left your spouse to handle your finances during your marriage — or you got the unwelcome surprise of debt — you’ll need to start rebuilding your finances along with the rest of your life.
For White, that meant rebuilding her credit and getting a more reliable car. She obtained a car loan with the help of a now-defunct charity. After two years of making regular payments, she felt ready to take the next step.
“So I called the same bank that gave me the car loan and asked for a credit card,” White said. “It started out with a $300 credit card, and I only used it for gas. That’s the only thing I put on my credit card still to this day, because you can’t overspend on gas.
After 18 months, she asked the credit card company for an increase in her credit line. The company gave it to her because of her history of on-time payments. Although she still only uses the credit card for gas, the increased credit limit decreased her credit utilization ratio, which gave her credit score a boost.
Your credit utilization ratio is important because it’s a large determining factor when it comes to your credit score.
Although she wants to buy a house eventually, White said she refuses to take on any additional debt — not even a second credit card — until she pays off the year left she has to pay on her car and the $50,000 she has in student debt.
“I know that I should have more lines of credit to increase my score, but honestly, I don’t want it — I will take the slow climb that I’m on right now,” she said. “I pay off my credit card every month… I don’t want to accrue any more debt.”
Stay Positive About Your Financial Future
If you can see past the day-to-day struggles and costs of your divorce, this could be your chance for a fresh financial start.
“Think of it as a short-term time when your finances are going to be in flux,” Ward said. “Cutting back where you can is a good idea as you’re going through the divorce process; know that on the other side of it, you might have a little more control over where your money’s going.”
In the immediate aftermath of her divorce, White said it was really hard for her family to recover from having two incomes to cover debt to having it all rest on her shoulder.
“Being solely responsible financially for me and my two kids… if I didn’t make the money or come up with the money, then we didn’t have the money,” she said. “That was a huge change.”
In the end, she’s proud of proving to herself that she could take financial responsibility for herself.
“It was very, very challenging,” White said. “However, I will say it was also very empowering because I was the one who was in control of my money. No money came into that house or left that house without me knowing it or doing it.”
Proof that life after divorce can be a singular success.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.