1. What are the rules regarding joint credit card debt?
There are two types of credit accounts: individual and joint. You can permit authorized persons to use the account with either. When you apply for credit-whether a charge card or a mortgage loan-you’ll be asked to select one type.
A. Individual or Joint Account(s)
Individual Account: Your income, assets, and credit history are considered by the creditor. Whether you are married or single, you alone are responsible for paying off the debt. The account will appear on your credit report, and may appear on the credit report of any “authorized” user.
Advantages/Disadvantages: If you’re not employed outside the home, work part-time, or have a low-paying job, it may be difficult to demonstrate a strong financial picture without your spouse’s income. But if you open an account in your name and are responsible, no one can negatively affect your credit record.
Joint Account: Your income, financial assets, and credit history – and your spouse’s – are considerations for a joint account. No matter who handles the household bills, you and your spouse are responsible for seeing that debts are paid. A creditor who reports the credit history of a joint account to credit bureaus must report it in both names.
Advantages/Disadvantages: An application combining the financial resources of two people may present a stronger case to a creditor who is granting a loan or credit card. But because two people applied together for the credit, each is responsible for the debt. This is true even if a divorce decree assigns separate debt obligations to each spouse. Former spouses who run up bills and don’t pay them can hurt their ex-partner’s credit histories on jointly-held accounts.
B. Account “Users”
If you open an individual account, you may authorize another person to use it. If you name your spouse as the authorized user, a creditor who reports the credit history to a credit bureau must report it in your spouse’s name as well as in your own. A creditor also may report the credit history in the name of any other authorized user.
Advantages/Disadvantages: User accounts often are opened for convenience. They benefit people who might not qualify for credit on their own, such as students or homemakers. While these people may use the account, you-not they-are contractually liable for paying the debt.
C. If You Divorce
If you’re considering divorce or separation, pay special attention to the status of your credit accounts. If you maintain joint accounts during this time, it’s important to make regular payments so your credit record won’t suffer. As long as there’s an outstanding balance on a joint account, you and your spouse are responsible for it.
If you divorce, you may want to close joint accounts or accounts in which your former spouse was an authorized user. Or ask the creditor to convert these accounts to individual accounts.
By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.
2. What is the status of New Jersey law with regard to the equitable distribution of credit card debt?
In New Jersey there is a presumption that there is a 50-50 split of any marital debt. Any marital debt is divided as part of any property settlement agreement. Equitable distribution requires a consideration of marital debts as well as marital assets. Generally speaking, the court must take into account the liabilities as well as the assets of the parties in dividing marital assets. There are many cases in which there are no marital assets, but only marital debts, which must nevertheless be allocated for purposes of equitable distribution.
The key New Jersey case with regard to the apportionment of martial debt is Monte v. Monte, 212 N.J. Super. 557 (App. Div. 1986). Here, the court held that the allocation of debt depends upon the circumstances in the particular case. In summary, any credit card debt that is related to supporting the family will be considered to be marital debt. If the credit card debt is related to such extracurricular activities such as gambling, massages, or on paramours, then the court will not apportion this debt to the other spouse. The key issue is whether the credit card debt(s) is related to supporting the family. If so, then both spouses will be held jointly responsible for these credit card debts even if the charges are incurred by only one spouse.
3. How are credit card debts apportioned in a divorce?
In many divorce cases the primary issue really is not the equitable distribution of marital assets. Instead it is the equitable distribution of credit card debt, car-repo debt, tax debt, and the paying off mortgage arrears. The bottom line is New Jersey is a very expensive state to survive in. Property taxes are sickening. Tolls are high. Food is expensive. Even just going to the beach will cost you almost $10. What a rip off! New Jersey is the only state besides New York to charge to get onto the beach. Let’s face it, many aspects of living in New Jersey suck.
In about one half of my cases, the primary issue is how can the parties split up the debt that was accumulated during the marriage. The basic rule is that any debts that were accumulated during the marriage must be allocated between the parties. However, a court may consider who has a greater income and proportion the debts accordingly.
I always recommend that the marital assets be sold, and that as much of the marital debt be paid off from these proceeds. I always recommend that the assets be sold or liquidated as soon as possible after the divorce is over. In many cases I recommend that the marital home be sold, and that any outstanding credit cards be paid off from the proceeds of the closing. I also counsel my clients that they should not pay full value to the credit card companies. I always recommend that my services be retained to obtain a “work out agreement” of the credit card debt. In many cases, I can work out a deal with the credit card company to settle their claims for 40% to 50% of the outstanding credit card bill(s). However, the credit card company must be paid the full amount of the settlement from the closing. In return, the credit card company will waive the remaining balance, and they will mark the debt as a “paid settlement in full” on the parties credit reports. This is a great service that I can provide to recently divorced couples, who are in financial trouble.
It is never a good idea to just split up the credit card debts. In many cases, the parties just do not honor the terms of the judgment of divorce. In many cases one spouse will eventually declare bankruptcy, and he/she will not honor the terms of the judgment of divorce to pay off certain credit card debts. Once the credit card debt is discharged by one spouse, then the credit card company will pursue the collection of this debt against the other spouse. If the other spouse co-signed on the credit card application, then he/she could be liable for this consumer debt even if the judgment of divorce specified otherwise.
In summary, the issue of outstanding credit card debts is very prevalent in most divorces. Great care should be given to insuring that the debts are paid off as soon as possible with the liquidation of some marital assets. If this is not possible, then great care should be given to determining if both spouses are listed on the credit card application as co-debtors. A litigant must always be mindful that if their spouse files for bankruptcy, then the credit card company may go hunting for you if your beloved ex-spouse filed for a bankruptcy.
In summary, in many cases the equitable distribution of debt is as important or even more important than the equitable distribution of marital assets. Don’t trust your ex-spouse. Follow up on him or her. Try to separate the credit card bills, and try to pay off as much of it as possible. Don’t let joint credit card bills linger being unpaid. These unpaid accounts can and will ultimately haunt you.
4. My divorce judgment specified that I was required to pay off certain credit card accounts that were accumulated during the marriage. Can I “blow off” my credit card payment obligations as required under the judgment of divorce by filing for bankruptcy?
Bankruptcy and divorce really go together like ham and eggs, Batman and Robin, and bad girlfriends and headaches. In summary, child support and alimony can’t be discharged in bankruptcy. A spouse can’t wipe off his child support and alimony obligations by filing for bankruptcy. However, a devious ex-spouse may have a small opening to try to discharge some of the debts to his/her spouse that were created by the equitable distribution aspects of the divorce. If a person files for bankruptcy, and if he tries to discharge debts to his spouse, then there is a possibility that this debt could be discharged in bankruptcy. The dependent person must object to the discharge of a non-support debt in bankruptcy court. The bankruptcy court will then hold a hearing to determine the dischargeability of the debts. It will consider whether the debtor has the ability to cover the debt with income of property which is not necessary for his or her support or for the support of the dependent, such as a spouse or child. Furthermore, the bankruptcy court will balance the benefit of paying the debt with the detrimental consequences of not paying the debt.
5. If one spouse files for bankruptcy what happens to any joint credit card debts?
The equitable distribution of credit card debts is a primary issue that arises in the majority of divorce cases. I always suggest that all credit card debts be paid off from the marital assets before any monies are distributed. It is always advisable to pay off all of the marital debt before the divorce is put through before the court. It is always important to emphasize that post-judgment issues always arise. It is extremely important for a divorcing couple to “tie up” as many loose ends as possible.
If there is a sale of a marital home, then I always advise that the credit cards should be paid off at the closing from the sale proceeds. The closing attorney can send out checks to the credit card companies at the closing table. Moreover, in many cases a diligent lawyer can assist their client to negotiate a fair settlement of the credit card debt(s). Many credit card companies will accept 60% settlement of the debt if it is paid in one lump sum. However, before any credit card debt is settled, a person must always receive a settlement letter from the credit card company or collection agency that verifies the terms of the settlement. Never trust a credit card company or a collection agency. Their chief goal is to collect as much money as possible. In many cases the credit card companies and collection agencies can be ethically challenged. Therefore, always get your settlement in writing before any checks are issued.
If one spouse files for bankruptcy, and if the other spouse does not file, then the credit card company will “go after” the spouse who did not file. When you sign up for a credit card, the spouses usually sign a contract that you need a microscope to read it with. The contract requires both parties to be jointly and severally liable. Basically, this means that if one spouse should die or files for bankruptcy, then the other spouse is liable for the entire credit card debt. The credit card companies do not care whether it is fair to collect the credit card debt from you or from your ex-spouse, even though the charges were racked up by your ex-spouse. The credit company is possessed with only one objective, and that is to collect money. They will destroy your credit, lien up your home, and garnish your paycheck to achieve their goals.
In any divorce case, the equitable distribution of credit card debts must be handled with an extreme attention to detail. One should never assume that their soon to be ex-spouse will pay their credit card debt(s) that are delineated in their divorce judgment. Moreover, bankruptcy is a part of life in the United States. Even though the bankruptcy laws just recently got harder, I predict that the amount of filings will remain stable. Any property settlement agreement should have provisions in it that address what will happen to the apportionment of credit card debts if one spouse files for bankruptcy. I have seen countless of divorce cases, wherein one spouse files for bankruptcy, and tries to sandbag the other spouse with all of the credit card debt. Life is not fair. However, informed divorcing men and women can hedge their risks, and minimum these types of disasters that occur more often than not.
6. Once I file for a divorce how should I handle the joint credit card accounts that I now hold with my wife?
A divorce can take time. To avoid acquiring additional joint consumer debt during the divorce, close your joint credit card accounts. You will still be jointed responsible for paying off the balance of the closed accounts. Closing shared credit card accounts is a critical step in the divorce process, and is one that should not be overlooked. The more you remain connected to your soon to be ex-spouse financially, the more you are at risk. If possible, pay off joint credit card balances by check from your individual bank accounts or through balance transfers to your individual accounts.
I always advise my clients to close out all joint credit cards once the divorce case is filed. Even if a divorce is filed, both spouses will still be jointly responsible for credit card debt that is charged up on a joint card. Therefore, it is imperative to close all joint credit card accounts once a divorce starts. If the credit cards are held under separate names, then there is no liability for the spouse whose name is not listed on the credit card. I have heard of “horror stories” when one spouse does not take his name off joint credit cards once a divorce starts. In many cases, a spurned spouse will try to ruin their mate’s credit by ruining up the balances on any joint credit cards.
To close joint credit cards and the like, a person must formally write the creditors and notify them of the impending divorce. A person who is divorcing should request that the credit card account be closed and that the credit cards be canceled. Additionally, a person should also ask the credit card company to provide a current statement of account and make them aware of the fact that you do not intend to be held liable for any and all debt accumulated after the date of the written letter. It is wise to send these letters by certified mail to retain proof of receipt by the creditors. In some instances, the creditor will ask that the outstanding balance on an account be paid in full. If it is possible to comply with this, then do so. If not, at the very least, have them place the account on inactive status so that no new additional charges may be added and stipulate that once the balance is paid in full, the account is to be closed completely and forever. Most of the time, these simple requests will be granted immediately; if they are not, contact a supervisor explaining you are going through a divorce until proper satisfaction is achieved.
7. What will happen to my ex-spouse’s credit report if I file for bankruptcy?
Each person has (or is supposed to have) a separate credit file for credit reporting purposes. Your debts, if yours alone, are not supposed to show in your ex-spouse’s credit file. Similarly, your bankruptcy should not show in your ex-spouse’s file if you have no joint debts. Even so, it pays to monitor your credit file, since credit reporting, like so much else in life, does not always follow the law.
8. What can I do to protect myself if my spouse files for a bankruptcy?
The more experience that I gain in the matrimonial world of divorce, the more I realize that life is not fair. In my one of my first divorce cases, the parties agreed to equally split $40,000 worth of credit card bills. Unfortunately, my client did not want to ruin her credit, and she was forced to repay all of this debt. Her deadbeat husband did not pay a dime of these credit card debts even though the divorce judgment required him to pay one half of it. Credit card companies just want their money, and they don’t care who they collect it from.
It is always advisable to insert clauses into a property settlement agreement or a divorce judgment that limits the impact of a bankruptcy. Clauses can be put into a property settlement agreement that will give a spouse a right to reopen a case if a spouse has filed for a bankruptcy. Some sample clauses are as follows:
Sample Bankruptcy Proof Clause A
In the event of the declaration of bankruptcy by the Wife or Husband, then, in that event, said party shall continue to remain personally liable to the other for any and all expenses incurred by that other party in the connection with the defense of any suit instituted by a creditor or in connection with the payment of any monies to said creditor. It is the intention of the parties that any bankruptcy filed should be effective as against the creditor but shall not be intended to act to the financial detriment of the other spouse. The parties further agree that in the event a financial detriment to the other spouse is encountered as a result of the bankruptcy laws, then any provisions regarding equitable distribution and/or alimony shall be modified as to compensate the aggrieved party for the financial loss.
Sample Bankruptcy Proof Clause B
It is the intent of the parties that the obligations assumed by each in this Agreement, including any and all indemnifications, shall not be dischargeable in any future bankruptcy proceeding. The parties recognize that the support and equitable distribution provisions are interrelated; in the event one party is called upon to make payment on a debt, or fails to make payment to the other of an asset, as provided herein, such a circumstance would be considered a significant change in circumstance, warranting an application for a modification of the support provisions provided for herein, as well as a redistribution of assets and liabilities in order to effectuate the overall intent of this Agreement. As a result of the interrelationship between the support and equitable distribution provisions of this agreement, it is the intent of the parties to consider the payment of debts and transfer of assets, including indemnifications, to be in the nature of alimony, support or maintenance for purpose of interpretation under the bankruptcy code. Moreover, the parties acknowledge that the benefit to the defaulting party of discharge of any obligations hereunder in any future bankruptcy proceeding will not outweigh the detrimental consequences to the no-defaulting party. As a result, it is the intent of the parties that the obligations assumed hereunder shall not be discharge able in any future bankruptcy proceeding.
9. My husband filed for bankruptcy and he wiped off all of his credit card debts. The credit card companies are now suing me. What can I do?
Under New Jersey Law, the courts have continuing jurisdiction to review awards of alimony and child support and may increase or decrease such awards where parties’ circumstances have changed. The post divorce bankruptcy of a spouse is a change in circumstances that may warrant a modification of a prior alimony award. More likely, it will be the non-debtor spouse who makes the Lepis application because the bankruptcy has diminished the amount paid to the non-debtor spouse as equitable distribution and because the discharge of the debtor spouse leaves more money available to distribute as alimony or child support.
In simpler terms, the non-debtor wife can file a motion with the family court, and request that the alimony, child support, and the terms of divorce settlement be reconsidered because of the bankruptcy. This type of application is commonly referred to as a Lepis application.
10. How do I close my joint credit cards with my spouse?
To close any joint credit cards accounts you must write the creditors and notify them of the impending divorce. Request that the account be closed and the credit cards be canceled. Ask that the credit card company provide you with a current statement of the account and make them aware of the fact that you do not intent to be held liable for any more accumulated debt after the date of cancellation. It is advisable to send these letters by certified mail to retain proof of receipt by the credit card company. In many instances, the credit card company will ask that the outstanding balance be paid off in full. If this is feasible then comply with this, then do so. If not, then request that the account be placed on an inactive status so that no new charges are added to the account balance.
11. What are some essential concepts to remember with regard to credit cards and divorce?
a. If you share joint credit cards then you should cancel them as soon as you know your marriage is ending to insure that the balance does not increase any further. Be sure to cancel not only your major credit cards but also your department and gasoline charge cards as well. It is also advisable to obtain a new credit card in your name only so that you may begin to build individual credit.
b. If your spouse is unable to pay the credit debt assigned to them in the property settlement agreement, then credit card company can legally require that you pay the debt. Late payments made by your spouse may also show up on your credit report.
c. Any credit card debt that was incurred by your spouse before you got married is their sole responsibility.
d. Your credit card company is not bound by your property settlement agreement and the divorce judgment. If you signed the credit card contract, and if your name is on the dotted line then you are responsible for this credit card debt. The credit card company will not absolve you of any legal responsibility for your account, even if the family court orders that your spouse must pay for this debt. The credit card company will gladly accept payments on the account from any spouse. However, if the account goes into delinquency, then the credit card company will sue the spouse who signed the original account contract.