Divorce Planning: Credit Card Debt and Divorce

Q: Our divorce was final just a few months ago, but already we have a problem: Our  settlement agreement says my ex-husband is responsible for  three credit card debts that we incurred during our marriage, but he has not yet made any payments/ What can I do?  

A: Unfortunately, thorny financial issues can arise  “post-judgment”  -- that is, –  after your divorce decree is final. Quickly, consult with your attorney – alert him or her now of the situation and ask for help. Time is of the essence. Your credit score could be at risk and so there is not a day  to lose.     

Credit card debt is considered “unsecured”. That is, there are no assets that back up or ‘collateralize” the debt. Unlike mortgage debt, which is secured by a house, or a car loan which is back up by a car, the credit company has only you and your ex‘s  promise that you will repay. The credit card company is counting on you and whomever else is on the account to pay the monthly balance until it is paid off. It’s a obligation that they  usually enforce regardless of  changing martial status , and often regardless of who’s “supposed” to pay according to a divorce decree.  

In short, they will be expecting you to pay the monthly minimum, forever, until it is paid off. Even if your ex- is supposed to. Often we financial advisors recommend considering methods of trying to secure unsecured payments during the financial negotiations. Requesting accounts in escrow or annuities or setting aside other sets of assets to be used to pay down the designated debt can often help the parties meet their future obligations.   

If you are able, make at least the minimum payments on time, every month, on time.  And, as you’ve probably heard many times before, making more than the minimum if possible is highly advisable. This is one method that can help retire debt years earlier than making just the minimum.  

If you are not able, you should immediately call the credit card company, and explain your situation. You  may ask them about any programs to help borrowers in a bind, like yourself. Sometimes issuers may be able to work with you, negotiating for a lower interest  rate or reduced payments for a set period of time. 

If you are able to arrange this – make sure that you honor the agreement to the letter and on time each month, and gradually you may be able to work your way out of this situation.  

Also, make sure that any new charges incurred by anyone but you are prohibited. You may want to keep the account open in your name only, to retain and continue to build your own credit.  If closing the account is the only way to preserve further charges and your credit your attorney and the credit card issuers should advise you of how to proceed. 

 

Cynthia Anderson Thompson, Certified Divorce Financial Analyst (CDFA ™), MBA (Harvard), is founder of Divorce Planning Solutions LLC, a fee-only financial planning firm in New York.  She can be reached at cindy@divorceplanningsolutions.com or 914-906-2919.