Divorce is not easy, but it can be made more complex when credit cards with balances are involved, especially if one spouse is experiencing financial problems. I was recently asked this question:
“I took over a joint credit card after my wife and I separated and only I have charged items to the card since the separation. I have now cancelled that credit card. Will my ex-spouse will be responsible for the balance on the card if I go bankrupt?“
There are two factors that will impact legal liability for credit card debt during a divorce or separation:
- what does joint and severally liable mean when it comes to joint credit cards, and
- can joint debts be removed by virtue of a separation or divorce agreement.
Liability for joint credit cards
Not all credit cards are joint credit cards. If you have a credit card issued in only your name, with no spousal card, then your spouse or ex-spouse cannot be held liable for any charges or balances.
Spousal cards however can create a liability for the secondary cardholder. Determining whether or not a supplementary card is joint depends on the terms and conditions of the credit card agreement itself. If the credit card is a joint credit card, both spouses will be considered ‘jointly & severally’ liable for all debts. That means that both spouses will be liable for the full amount of the debt, including any interest that accrues after the card is cancelled. Cancelling a credit card after divorce does not cancel the outstanding debt to either party.
Using credit cards after a separation
The second issue surrounds how debt is treated in a separation or divorce. Unlike assets, credit card debt cannot be separate by a divorce agreement. Your souse may still be liable even if you think they are not.
In our example above, the credit card remained in both names after the divorce and as a result the credit card company has the right to look to the ex-spouse to cover the balance if the current user of the card filed for bankruptcy. This includes not only debts that existed at the time of divorce, but any charges made on this card after the divorce.
Just like cancelling a card does not eliminate the liability of the joint card holders, neither does a divorce or separation agreement, formal or otherwise, limit the liability of any spouse from the lender’s perspective. You might agree you will be responsible for making all payments on the card, but without the credit card company’s express written consent, both joint cardholders will remain liable for past and future debts on the joint card.
A request can be made to the credit card company to remove the name of a joint cardholder or co-signor, but if there is a large unpaid balance, as in this case, it is unlikely they will agree. Sometimes the credit card company will do this if proof can be shown that only one person has charged items to the card since the card was first used and has the capacity to pay the balance. The original terms and conditions of the cardholder agreement can also come into play.
Cancel cards upon separation, not after
It is better to cancel all joint credit cards upon separation and open new credit cards in just single names. That way the balance on the old card can be paid jointly or covered in the separation negotiations and the new cards will be in the individual names and the responsibility of the charging party only. It’s important to remember as we noted above, that even if the divorce agreement requires one party to pay off the balance, the credit card company will still pursue the joint cardholder if they fail to make payments unless the credit card company specifically agreed to have the second cardholder’s name removed from the card.
Divorce, bankruptcy and credit card debt create a complicated trifecta. Talk with one of our licensed insolvency trustees before you file to ensure that the solution you choose will work for both you and your ex-spouse.