Financial separation is a challenging part of the divorce process. Spouses frequently disagree about how to split up their property. They may also face conflicts related to their shared debts. Credit card balances can have a profound impact on the overall property division process. Spouses trying to achieve a fair settlement have to consider what they owe, not just what they own together.
As people begin negotiating solutions for credit card balances, awareness of the three common concerns below can help them avoid unfair and unfavorable settlement terms.
1. Which debts are marital?
Spouses sometimes operate under the assumption that each person has to take responsibility for credit cards in their own name. However, any debt that originates during the marriage is potentially a marital debt, even if the account is in the name of one spouse. There are exceptions for cases involving intentional financial misrepresentation, such as one spouse hiding debts and lying about their financial activities.
Spouses generally do not have to divide debts that they took on before the marriage. Debts related to adultery or the dissipation of marital assets, such as frivolous spending the week before filing for divorce, may also be the separate responsibility of one spouse rather than a marital debt that requires a division.
2. Is a spouse likely to default?
Many people assume that having their spouses take responsibility for marital debts is the best outcome. Despite their expectations, they may still technically share legal and financial responsibility for those debts if their spouse defaults, dies or files for personal bankruptcy.
People have to evaluate the possibility of a spouse refusing to fulfill their financial obligations. In that situation, credit card lenders could potentially pursue collection activity against the other spouse, including filing debt-related lawsuits.
3. How much can each spouse afford?
The ability to manage future debt responsibilities is an important consideration when allocating financial responsibility and even assets from the marital estate. The goal is an overall fair outcome, and spouses may need to use the allocation of property to balance the distribution of debts.
One spouse may retain more property while also assuming more responsibility for marital debts, as they may have the income to cover those obligations. There are a variety of solutions available when negotiating a property division settlement that must include credit card debts.
Reviewing the situation carefully and exploring a variety of solutions can help people protect themselves from imbalanced settlements, overwhelming financial obligations and future stress related to a spouse’s default. People who approach divorce negotiations carefully can protect their current resources and future income.
