Sharing a credit card with your spouse is something that many married people do. However, the debt that can be accumulated on a card often finds itself at the center of a divorce case. If you are going through a divorce right now it may be that you put off getting a divorce due to concerns you had about how you would pay off debt once the divorce was finalized. What if you got stuck with the thousands of dollars in debt that currently sits in your credit card account?
Having financial stress is a common characteristic of people facing divorce. From what I can tell, financial issues lead people to divorce more than any other reason. Even if you and your spouse earn good incomes, it can be made to feel like you earn far less when a high percentage of that income is being sent out each month to creditors.
The other thing that you need to keep in mind is that your credit card debt cannot be completely taken off your list of concerns. Once you sign a contract with a credit card company, you will be liable for any missed payments or legal issues that arise from the debt associated with that card. Your final decree of divorce may shift the burden of paying that debt between you and your spouse, but the reality of your contract with the creditor will not be affected even if your spouse has been ordered to pay the credit card debt.
Who is going to have to pay the credit card debt at the conclusion of your divorce?
Do you and your spouse share bank accounts? What about a credit card? If you are able to make this commitment, I think it is usually a good thing that you and your spouse combine finances. For one, it forces you two to communicate with one another. If you operate in different financial worlds it becomes easy to lose track of any common goals. Relying on your spouse to budget and spend within reason will enhance other areas of your lives.
At the same time, just because you and your spouse share a credit card account does not mean that you are completely responsible for every charge on the account (and vice versa). If your husband opens up a credit card account and subsequently adds your name to the list of persons that can use the card, this does not necessarily mean that you will be in the line of fire when it comes to liability.
The only situation where you assume responsibility on a shared credit card is one where you and your spouse open up the account together. This means that you submit an application, and both sign the contract. Depending on the credit card application that you are sending in you may not even be able to open up a joint account with your spouse.
The alternative to this situation would be to have your spouse open up a credit card in his name and to have your name added as an authorized user. It is easier to apply for and be approved in a situation like this compared to jointly applying for a credit card. Let’s walk through some of the unintended consequences that folks in your shoes may encounter when it comes to authorized use of a previously awarded credit card.
Liability/risks if you open up a credit card and add an individual as an authorized user
As we touched on earlier today, you and your spouse would jointly share liability on a credit card account that you opened up together. Your credit score can take a tumble for missed payments over an extended period of time. The alternative to this situation would be to open up a credit card under one person’s name and then to have a spouse added as an authorized user.
If you add your spouse as an authorized user to a credit card account that you opened up previously, he or she can use that credit card without any restrictions. It is a no-lose situation for your spouse. He or she have nothing to risk as far as their credit is concerned. They bear no personal responsibility for paying the debt associated with the card.
You, on the other hand, bear a great deal of responsibility. You knew that signing up for the card. You need to make monthly payments on the card that are at least equal to the minimum payment for that credit card. Now that your spouse has been added to the account, however, you not only have to keep your spending habits under control but you are now responsible for the spending habits of your spouse. Your spouse has the potential to really hurt your credit and set you back financially.
This is usually an ok situation when you and your spouse are operating within a functional marriage. However, if you and your spouse are moving towards a divorce then you need to be aware that your spouse can still utilize the card even while you are in the process of ending your marriage. Imagine the surprise if you look at your bill and see that your spouse has hired an attorney, private investigator and bought a new wardrobe for court all on your credit card.
Now, you can get the debt divided up in the divorce according to whatever method you and your spouse choose to employ in mediation. Likewise, you and your spouse can have the debt divided between the two of you by a judge if you cannot agree on how to do so in mediation or informal settlement negotiations. Either way, your debt will be dealt with in your divorce. Whether or not you like how it is divided is another subject altogether.
Risks to the authorized user of a credit card in conjunction with a divorce case
If you are listed as an authorized user on a credit card account then you are missing out on the few advantages having a credit card allows for. First of all, if you are young and are attempting to build credit being an authorized user on a credit card does not allow you to do that. It may be that your authorized user status on a credit card does not even come up on your credit report. If payments are made on time then this can be a negative for you in the long run, it could be argued.
Consider your situation if you are a spouse who has stayed in a bad marriage longer than you ought to have just because you lack the financial resources or credit to go out and make a life for yourself as a single person. You have sacrificed a career and other “worldly” objectives in order to provide a home for your spouse and children. Now, staring down the face of a divorce, you are concerned about what will become of you after the divorce concludes. That can be intimidating for even the bravest person.
As we have seen, there is nothing that the judge can do artificially to increase your credit score or to do away with any relationship you have with a credit card company. If you are liable for a debt on a credit card it isn’t as if the judge can simply wave his magic gavel and do away with the debt. By the same token, even if you are not liable for the debt a judge cannot magically add 300 pts to your credit score so you can qualify for a home mortgage at the conclusion of the divorce. This is a tough position to be in and is all the more reason why you need experienced counsel to guide your decisions and help keep you up to speed as far as what your options are.
Community property and credit card debt
Texas is a community property state. This means, in a general sense, that spouses share in the collective successes and failures of the marriage from a financial perspective. If we consider debt a “failure” of the community estate, then a judge can order that debt be divided up between you and your spouse. This can protect you if the debt is comprised mainly of your purchases. It can also harm you if you were a mere authorized user who is not legally obligated (by an account-holder contract) to pay that debt.
Here is how community property can potentially interact with credit card debt in a Texas divorce:
Community property can be sold to pay down credit card debt
Since Texas is a community property state the property that you and your spouse own is likely shared by the two of you from an ownership perspective. It doesn’t matter if you don’t work and it was your spouse’s income that paid for these items. The law in Texas is that income earned from basically any source during the marriage is considered to be community income. Therefore, the property purchased with that community income is community property.
On bigger ticket items, like your marital residence, it doesn’t matter if the house is only titled in your spouse’s name. If it was purchased during the course of your marriage then it is considered to be community property and is divisible, potentially, in a divorce. The key to our discussion today is that if you and your spouse cannot figure out how to divide up debts in mediation, a judge will need to determine whether a particular debt is community debt and then how to divide it in the divorce.
If a debt was accumulated and benefited both you and your spouse then it’s likely that the debt will be considered to be community debt. On the other hand, if your spouse owes $50,000 to a racetrack or casino due to a gambling addiction that is a debt that would not be your responsibility in the divorce.
A judge has it within his or her powers to order that particular pieces of community property be sold, and the cash obtained from the sale used to pay down debt. If you are responsible for a credit card debt from a legal standpoint, but your spouse was assigned responsibility for paying the debt in a divorce this can be a great method of paying the debt off. You do not want to be in a position where you are constantly having to ask your ex-spouse for an update on when payments would be sent in on a particular debt. If a judge orders personal property or real estate to be sold in the divorce and the funds applied to that debt, you have one less thing to worry yourself with.
If you and your spouse have a joint bank account that is community in nature it can be tapped by the judge to pay debt, as well. If a credit card was used to benefit the community estate then this is a realistic option. Consider if a credit card was utilized to upgrade your home in some way. That card certainly benefitted both you and your spouse in an immediate and long term sense.
The final option that I wanted to mention is probably the most straightforward. You could accept responsibility for a credit card debt that benefited you and your spouse. In exchange for accepting this debt responsibility you could be awarded community property to offset the debt. The balance sheet would show no gain or loss. Of course, this would necessitate having enough property in your community estate to make the math work out.
Questions about divorce, debt and community property? Contact the Law Office of Bryan Fagan
The attorneys with the Law Office of Bryan Fagan offer free of charge consultations six days a week here in our office. Pick up the phone and contact us today in order to get an appointment set up with one of our licensed family law attorneys. We are experienced, professional and have what it takes to help you and your family accomplish whatever goals you have in relation to a family law matter.