Divorce and Credit Card Debt

Clients and divorce professionals focus on assets and how they will be divided. Who gets the house?  How will retirement accounts split?  How much will I walk away with?  There are fewer questions about debt.

 Just as much attention should be placed on debts – car loans and credit card debts.  Whose name is on each account?  How is it going to be paid off?  Is the account going to be closed, and when?  Here are some important considerations:

 ·         The Husband will retain a vehicle registered to the Wife and the loan is in her name.  The title cannot be transferred until the loan is paid off.  If the loan cannot be paid off, the Husband will drive a car registered to the Wife.  If he is late on the payments or misses payments, it can impair the Wife’s credit rating (which can make future borrowing more expensive and can make other costs where the cost is based upon credit scores).  If he gets involved in a car accident, the Wife as owner can be sued if the damages exceed the insurance coverage.  Who will pay the property tax on the car and who can legally deduct those taxes?  We suggest that in these instances, a Settlement Agreement should spell out what happens if payments are late or missed and set a minimum amount of vehicle liability insurance. 

 ·         Credit cards are in the Husband and Wife’s name, though the Wife has not had a card for years.  An Agreement might specify that the Husband shall pay the balance on the credit card.  Four years later, after both parties have remarried, the Husband defaults on “his” credit card.  The Wife can be sued by the bank.  Therefore, we suggest that each person obtain his/her detailed credit report and review all outstanding credit cards and determine if they are in both names or in just one name.  If in both, perhaps it should be paid and closed, or the balance transferred to a new card.

 ·         Once you determine that there is a credit card in both names, the initial reaction is to agree to pay it off and close the card.  However, if either party will refinance the mortgage, seek a mortgage for a new house of even obtain a car loan, the closing of a credit card can be disadvantageous.  Check with your lender to learn how the closing of the card may affect your credit score.  It may be wisest to agree to make no further charges on the credit card account and wait until the refinance or purchase of a new car or hoe is completed before closing the card.  Obviously, a high degree of trust is required to make this decision. 

Speak with Steve at 352-1000, who may help you with these issues.