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Divorce Debt Consolidation – Best Deal Right Now?

Tutorial video in a series of DIY divorce videos explaining how to deal with credit card debt during a divorce.

Debt is like property. We have community debt and separate debt. Debt incurred before the date of marriage is the separate debt of the spouse that incurred the debt. Credit card debt incurred between the date of marriage and the date of separation is generally community debt. Upon a divorce, separate debt is assigned to the person that owes the debt and community debt is typically equally divided between the parties.

In most cases, title to the credit card does not determine whether the credit card debt is community or separate. If a couple gets married and the Husband takes out a Visa credit card in his sole name and then racks up $5,000 in credit card debt during the marriage, using the card for community purpose, then the $5,000 is a community debt, even though the credit card is held in Husband sole name. If the credit card is not paid, the credit card company may sue only Husband because he is the only spouse that signed the credit card application, but the divorce court will treat the debt as a joint community debt.

The divorce judgment does not have to equally divide each and every community credit card debt. Usually, Husband will take responsibility for paying certain credit cards and Wife will take responsibility for paying other credit cards. If the division of the credit card debt is unequal, the parties or the court can give one spouse or the other a bit more of the community property assets to make up the difference.

If you have credit card debt that is held in the names of both parties, the best approach is to pay off that debt at the time of the divorce. Use community bank account funds to pay off the debt. If you don’t have sufficient bank account funds, consider selling a community asset to pay off the debt. Oftentimes, the parties will agree to pay off all credit card debts with the proceeds from the sale of the family home. You want to pay off all the joint credit cards because, if you don’t, if you assign a joint credit card debt to your soon-to-be ex-spouse, and that spouse fails to pay the credit card debt, it will impact your credit rating and you may end up being sued by the credit card company. It does not matter to credit card companies if the court assigned the credit card debt to your spouse as part of your divorce decree. If your spouse fails to pay the credit card company on a joint credit card debt, the credit card company will come after both of you.

If you and your spouse do not have the ability to pay off all of your joint credit cards, see if your spouse can transfer the balance on the joint cards assigned to him or her to a new or different credit card that is held in just his or her name. That way, if your spouse fails to pay the balance on the new card, it won’t impact your credit rating.

If you have joint credit cards when you separate, you want to contact each credit card company and instruct them that no additional charges are to be made on that card. You want the card frozen so no additional charges can be made. You do not want your soon-to-be ex-spouse running up a lot of credit card debt on a joint credit card after you separate.

Miles and points that are earned by using credit cards are a form of property. They can have substantial value. If those miles were accumulated during the marriage, the miles are community property and should be divided like any other community property asset. Make sure your settlement agreement divides the reward miles or points.

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