Family Law

Dealing with Credit and Creditors During Divorce

Practically everyone has some sort of debt, from credit cards to car loans. Usually, there's even more debt for married couples. When divorce is in the picture, knowing how to handle the debts is important.

You may be jointly liable with your spouse for all marital debts, even after the divorce. You need to protect your interests by continuing to make payments and by closing those joint accounts.

Individual Versus Joint Liability for Debts

The rules for determining which spouse is responsible for which debts that arose during the marriage vary between states and largely depend on the type of debt. Generally, debt liability determinations fall into three classes:

  • Debts made in one spouse's name only
  • Debts made by a spouse for marital necessities or necessaries
  • Debts incurred by both spouses through joint accounts or credit cards

Individual Debts

In most states, each spouse is responsible for any debt they make in their names. An individual loan or credit card agreement is an agreement that one spouse enters into and that spouse is solely liable for the balance due on the loan or account.

Joint Debts

Both spouses are typically responsible for debts incurred under joint accounts. A joint account can be a credit card, line of credit, or loan agreement that both spouses sign as responsible parties. The creditor may seek a recovery from either spouse for the unpaid balance.

The "Marital Necessities" Exception

Many states make exceptions for debt incurred for "marital necessities." In legalese, the term used is "necessaries" meaning food, clothing, shelter, education, health care, insurance and other "comfort" items typical of the marital parties' standard of living.

In the old days, the husband was responsible for any debt incurred by the wife for necessaries. Today, states vary considerably on who is responsible for paying creditors for marital necessities. Here's how the situation might be treated:

  • The husband is still solely responsible for debts on marital necessities
  • The husband has primary responsibility and the wife has secondary responsibility for marital necessities
  • The wife may be responsible for marital necessities
  • Both spouses are equally and jointly responsible for marital necessities

Because of the different treatment given to debts for marital necessities, it's very important that you discuss these matters with your attorney.

What You Need to Do

It's unlikely that a creditor will get involved in the divorce process. But, it can happen. An unpaid creditor may sue to collect a debt, foreclose on property used as security for a debt or force an involuntary bankruptcy. Any of these actions may damage your credit rating and increase the strain on your finances.

You can take steps to protect your credit rating during and after the divorce:

Ensure that all creditors are paid on time. Even if your spouse is ordered to pay a joint debt, you can make the payment to protect your credit rating and then recover the amount paid from your spouse by negotiation or by taking your spouse to court.

Close all of your joint accounts as soon as possible. Close any joint account that's open but has no balance owed. As for an account with a balance due, request that it be frozen to prevent additional charges. Also, ask creditors to transfer joint accounts into individual accounts.

Negotiate a fair settlement of assets and debts with your spouse. Make sure that whomever agrees to pay the balance due on a loan also receives any property used to secure the debt. For example, you should get the car if you agree to pay the car loan. Otherwise, creditors could sue to have the divorce decree set aside on the grounds that it was an attempt by you and your spouse to defraud the creditors by transferring security to one spouse while making the other spouse financially liable for the debt.

With all that's going on in the divorce, it's easy to overlook the debts and who has to pay what. Don't make this mistake. You need to know before the divorce what you're post-divorce budget has to handle. With some careful planning and willingness to be fair, you and your ex-spouse can manage your debts so you both can get on with your single lives with as little financial strain as possible.

Questions for Your Attorney

  • Can my spouse stop me from closing a joint account?
  • Will joint account information be used for credit reporting purposes, like credit scoring, after the divorce is final?
  • Are all joint account liabilities shared equally in a divorce? How is it decided which spouse will be liable for paying off outstanding joint debts?
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