February 10, 2021
In the best of times credit cards serve a valuable purpose. But as we know, they are prone to overuse, and the consequences of such may be deep financial difficulties. This is of particular concern with a divorcing couple as it is common that credit cards are issued in both names. The use of joint credit cards should be addressed at the beginning of the divorce process.
“Joint debt” is a term that technically applies to a credit card that has two or more names on it. Both parties applied for the card together and were approved for the card. In this case they are joint owners and each of them is responsible for ALL debt associated with the card. If one party decides to quit making payments toward the balance, the other party must pay to avoid late charges. Otherwise, both parties will show a late payment on their credit report. Additionally, if one party files bankruptcy the other party becomes liable for the remaining balance. So, while this may seem like a joint responsibility in which each party owes half the balance, in reality each person is separately required to assure payments stay current and the balance paid off.
Sometimes a card user is not a joint owner, but rather an “authorized user.” This person can use the owner’s credit card but is not responsible for payments. Again – there is nothing “joint” about this card! They get the benefit of improving their credit score if payments are made on time. On the other hand, late payments will adversely affect their credit. This person’s name will not appear on the credit card statement – an easy way to tell who actually owns the card.
When a couple is divorcing, they should pay serious consideration to handling a joint card. The card should not be left open once the couple has decided to split, because one party could go on a spending spree and add to the debt balance. This could damage the other party’s credit as well as saddle them with increasing debt. At the very least the card should be closed, which prevents further charges while the balance is being paid off.
It is easy to remove an authorized user - that person’s name can be removed from the account with a simple phone call to the credit card company by the owner.
If the card is truly joint debt incurred by both parties then a decision needs to be made on how to divide the balance. Each person’s portion can be transferred to a new credit card in their name alone.
At the beginning of the divorce engagement, encourage your client to close any credit cards they share with their spouse. This will also make it easier and cleaner after the date of separation to divide marital debt.
