Divorce can have a major impact on your finances. This is especially true if either of you already have unsecured debt, such as high credit card balances.
According to a report by The Federal Reserve Bank of New York earlier this year, overall debt held by American households is higher now than it was just before the 2008 financial crisis. Credit card interest has hit record highs, so it’s more expensive than ever to roll over that monthly balance.
The high stress of money woes can strain even the strongest of unions, and debt is a frequent source of acrimony in divorce proceedings. In one poll by SunTrust, 35 percent of couples said they had experienced relationship stress with money being the primary factor.
How Divorce Courts Handle Credit Card Debt
The details of how debt is handled in a divorce depends on the state where you live. In New Jersey, for the most part, debt accrued on your own credit card is your responsibility. That includes pre-marital debt, or debt each party brought into the marriage.
There are exceptions, however, if the debt was accrued for “marital purposes.”
Examples of marital purposes debt would be:
- Clothes for your children
- Items for your home
- Payments on a shared vehicle
- Groceries for the family
Debts of this kind can be divvied up through the same equitable distribution process as marital assets.
Joint Credit Card Accounts
If both of your names are on the account (also known as a joint account), the court will likely consider this debt subject to equitable distribution. If the bulk of expenditures on that account were made solely by your spouse for non-marital purposes, you might make a strong case for your spouse to be the one responsible for payment. Some examples might include debts accrued for gambling, drugs or affairs.
Your New Jersey divorce lawyer can help you review these accounts to determine if that’s an option.
Keep in mind that the credit card company can hold both joint account holders responsible for payments regardless of what your divorce agreement states. That is because the Family Court has no jurisdiction to intervene in the contract you both signed with the credit card company when you opened or added your name to the account.
Still, a marital settlement agreement will give you some recourse if your ex-spouse fails to pay their share. Such agreements often contain “hold harmless” and “general indemnification” clauses in relation to payment of debts. Then, if either party fails to pay as agreed and the creditor pursues the other for repayment, the aggrieved party can file a motion to enforce the marital settlement agreement – and pass on to the indebted party whatever costs were incurred in the process (including what they had to pay to defend themselves from the creditor).
Protecting Your Credit From Your Spouse’s Future Spending
Couples who are considering a divorce may want to initiate separation of their accounts before the process is finalized. This is easier with co-signed accounts than joint accounts, and the bank/credit card company may decline the request if your ex’s income is deemed insufficient.
If you have a substantial amount of debt between you or disagree on who is responsible for what debts, these issues should be discussed with your divorce lawyer.
To learn more about division of assets and debts in a New Jersey divorce, contact Rozin | Golinder Law today at (732) 810-0034.