If you and your spouse have credit cards in your own names, you might think of them as your own to use as you wish. You may treat yourself to a shopping spree or go out to eat regularly. Unfortunately, this can create problems when you deal with credit card debt during a divorce. Those treats and splurges may become part of what you have to divide.
In a community property state like Arizona, debts incurred during the marriage are usually equally divided at the time of a divorce, no matter whose name is on the card or who made the purchases/charges. A collaborative divorce can help you work through the division by allowing you and your spouse flexibility, rather than requiring a 50-50 split. Working with legal and financial professionals can save you time and headaches as you move forward.
How Debt Builds
Accruing debt comes all too easily. A couple might obtain credit cards for emergencies. Car repairs and hospital bills can lead to some debt, but eventually, “splurge” purchases and treating yourselves can become the norm. As the financial strain starts to build, arguments unfold.
Unfortunately, the burden of debt doesn’t disappear during a divorce. Fighting over whose fault the debt is and who should deal with it can lead to heated disagreements. Despite the other issues you may focus on during your divorce, money can quickly take center stage and overwhelm the process. Working with your attorneys, communication specialists and financial neutrals can help keep the process moving forward.
Dealing with credit card debt during a divorce can be a little less traumatic with the collaborative process. The goal of this is to reach a mutually agreeable outcome, not to “win.” Financial neutrals can work with you to create a strategy for reduction and division as well as help you develop budget plans for your future.
Community Property and Credit Card Debt
In Arizona, your credit card debt is usually part of your community property. This means that as long as one of you incurred the charges during your marriage, the debt belongs to both of you. There may be exceptions but proving this is difficult.
During a divorce, it can feel like time stands still. However, even though you and your spouse are brainstorming solutions to resolve your debt, you still need to continue to make timely payments. Credit card companies will proceed with late fees and credit reporting even in the midst of a divorce.
The most unexpected surprise about any credit card debt, is the lender doesn’t care what your divorce decree says. Let’s say there is a credit card in both of your names and your agreement is that you will each pay half by sending payments each month after the divorce is final. If one spouse fails to make the payments, the lender is coming after the other spouse. AND the late payment hit to your credit report will impact both of you. An educated financial neutral can make sure that you aren’t vulnerable after the final paperwork is signed.
Collaborative Divorce Can Help
A collaborative divorce gives you a framework to resolve complicated issues. It requires focus, communication and a willingness to work toward a common goal. When you work together, you can find ways to deal with credit card debt during a divorce. You will work with professionals to find a solution that is agreeable and manageable for both you and your spouse.
If you’re ready to divorce and have questions about how to divide your debts and assets, contact a professional at Best Legal Choices today.
What about other financial obligations, like your mortgage, during a divorce? Read here to find out more about mortgages and how divorce may impact them.
Nancy founded Smarter Divorce Solutions in 2011 after going through her own less-than-optimal divorce. She has over 18 years of experience in both investment management and financial planning.