How to deal with credit card debt during divorce
After sorting out custody of children in a divorce, splitting up finances and financial responsibilities among former spouses can be one of the most contentious and stressful issues for couples to handle.
“If you or your spouse had carried a lot of debt during your marriage, you may be concerned about your responsibilities for paying that debt back, as well as the implication on your credit and the ability to move forward financially on your own,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.
Here is how credit card debt is handled in a divorce:
Who pays what?
Remember that creditors are interested in recovering the debt that you owe and not so much in who pays it. When you divorce, either you, your spouse or both of you through an arrangement must pay the debt, as long as the debt is joint.
If your spouse had a card in their name only, generally you aren’t legally responsible for the debt.
What’s mine is yours?
Some couples decide to split the debt based on who spent what (i.e. if one spouse is a chronic shopper or gambler and the other spouse didn’t physically rack up the debt). This is possible, but again, you need to get this in writing from your creditors that this approach is ok, because if it is joint debt, technically you are both responsible for it.
Close joint accounts
It is advisable to try to pay off credit card debt before the divorce is completed, to preserve your credit score and to help you plan your finances most effectively moving forward. Close joint credit and bank accounts upon formal separation and ideally, include a repayment plan for existing joint debt as part of your divorce settlement. The creditors may agree to split the debt onto new single cards, or may require that you pay the balance off, depending on the financial circumstances. Make sure that you make any such requests in writing to your creditors.
Once this is accomplished, establish credit and bank accounts in your own name.
“If you’ve not had a card in your own name before, or if you have a lower income, it may be hard for you to establish your own credit. Similarly, if you still have joint debt outstanding with your spouse, creditors may be less willing to lend you more money, especially if you don’t have a lengthy credit card history to draw on,” says Schwartz.
To establish your own credit, you can open up a low limit credit card, secured with cash or other assets. Make a point of using this card strategically for purchases that you intend to pay off every month. Don’t run a balance or use this card as a way of extending your household budget.
The goal here is to use this card to establish good credit, which means you need to pay on time and keep the balances low or balance free.
Have you fallen behind in your debt payments because of a divorce? Get help to pay your debt down today and get your credit back on track. Call one of our trained credit counsellors at 1-888-294-3130 or get started with our online debt analysis.