Divorce is a challenging and emotionally taxing process that can have far-reaching consequences, not just for your personal life but also for your financial well-being.
One of the most common concerns our clients have is how divorce and credit card debt are intertwined and how the process can impact their credit scores. Protecting your credit can often fall by the wayside during the emotional and financial turmoil that takes place during a divorce, but letting credit issues pile up can have long-lasting consequences that just aren’t worth it.
Here’s everything you need to know about how to deal with your credit card debt while protecting your credit before, during, and after your divorce.
Understanding Credit Card Debt in Marriage
Before diving into how divorce affects credit card debt, it’s essential to understand how credit card debt is treated during marriage. In Texas, any debt incurred during the marriage is generally considered community property, regardless of which spouse made the purchases or whose name is on the account.
This means that both spouses are equally responsible for paying off the debt, even if only one spouse was aware of the purchases.
Does Divorce Affect Your Credit Score?
Does divorce hurt your credit score? The answer is not straightforward as divorce itself is not directly reported to credit bureaus. However, the financial consequences of divorce, such as changes in income, increased expenses, and the division of credit card debt, can indirectly impact your credit score.
It’s important to note that late payments, defaults, or high credit utilization resulting from mismanaged credit card debt during or after divorce can significantly harm your credit score. This is why, when it comes to divorce and credit card debt, it’s critical that you stay on top of payments.
So, does divorce affect your credit score? It can, but only if payments aren’t being made. This is why we tell our clients that one of the first things they should do when preparing for a divorce is to get a full list of all credit cards along with payment information, including logins and passwords.
This ensures you’re able to stay on top of payments if possible, and if not, you have the information you need to contact each credit card company and discuss your options to avoid hurting your credit score after divorce.
Divorce and Credit Card Debt: Who is Responsible?
As mentioned, in Texas, credit card debt accumulated during a marriage is generally considered community property, meaning both spouses are equally responsible for the debt, regardless of whose name is on the account.
So, who is responsible for credit card debt in a divorce? Unfortunately, you and your spouse both are, even if they had credit cards you didn’t know about.
During the divorce process, the court will aim to divide the debt fairly between both parties if it believes that it is a fair and equitable arrangement. However, if your spouse had secret credit cards with high levels of debt, your attorney can argue to the judge that it is only fair and equitable to have your ex-spouse take full responsibility for that credit card debt.
However, it’s essential to understand that even if your divorce decree states that your ex-spouse is responsible for paying off a specific credit card debt, the credit card company can still hold you liable if your name is on the account. Talk to your attorney about including defense and indemnification provisions within your divorce decree to ensure you have recourse if the credit card company attempts to collect the debt from you.
Protecting Your Credit Score During and After Divorce
Divorce and credit card debt often go hand-in-hand, but that doesn’t mean divorce will affect your credit score—if you take certain precautions.
Here are a few crucial actions you can take to deal with credit card debt during your divorce. You should also check out our Ultimate Divorce Checklist to see which other essential documents you should have ready to go before starting the divorce process.
1. Gather financial documents
Collect all credit card statements, bank statements, and other financial documents to get a clear picture of your debts and assets. Either you or your attorney can make it clear to your ex-spouse that any hidden credit cards will come to light sooner or later. This may compel them to acknowledge the existence of secret credit cards without having to hire a forensic accountant.
2. Pay off and close joint credit card accounts before finalizing the divorce
This ensures that neither party can continue to accrue debt on the account and minimizes the risk of missed payments or defaults, which can significantly impact your credit score. While not an option for everyone, it’s the best possible action to take.
3. Request that the court assign the debt to your ex-spouse as part of the divorce settlement
As mentioned, it’s possible that your attorney can convince the judge presiding over your case that you should not be responsible for some or all of the credit card debt. Here’s what to do if the judge agrees.
- Ensure the account is transferred to the responsible spouse’s name.
- Remove yourself from the account.
- Keep in mind that this process requires cooperation from both parties and the credit card company.
4. Establish a clear plan for paying off credit card debt after divorce
If you are going to walk out of your divorce with debt, put a payment strategy in place:
- Create a budget to manage your income and expenses.
- Negotiate with creditors to develop a payment plan or seek lower interest rates.
- Consider seeking the assistance of a financial advisor or credit counselor to help you develop a debt repayment strategy.
5. Adjust your budget if you experience a significant change in income or living expenses
Divorce can often lead to a change in financial circumstances, so it’s crucial to reassess your budget and make necessary adjustments to ensure you can meet your debt obligations.
6. Communicate with creditors if you anticipate difficulty making payments
If you foresee challenges in making credit card payments due to the divorce, reach out to your creditors proactively to discuss potential solutions, such as temporary hardship programs or payment deferrals.
Divorce and credit card debt are often interlinked, so credit card companies are used to helping people who have recently gotten a divorce to set up payment plans or alternative payment arrangements.
7. Monitor your credit report regularly
Keep a close eye on your credit report to ensure that all accounts are being paid on time and that no unauthorized accounts have been opened in your name. If you notice any discrepancies, address them promptly with the credit bureaus and creditors.
Make sure you have a clear way of monitoring and managing your credit card debt after divorce—this isn’t something you want to forget about in the chaos that often accompanies a divorce.
Working with a Knowledgeable Divorce Attorney
At Ilarraza Law, we understand that navigating divorce and credit card debt issues simultaneously can be overwhelming. That’s why we work closely with our clients to develop a comprehensive strategy that addresses both the legal and financial aspects of their divorce.
By working with a knowledgeable divorce attorney who understands Texas law, you can ensure that your rights and interests are protected throughout the process.
We’ll Help You Protect Your Credit and Your Financial Life
If you’re looking for a divorce attorney serving Flower Mound, Lewisville, and the surrounding Denton, Collin, Tarrant, and Dallas Counties who will fight for you to get the best deal possible, Ilarraza Law is here to help.
One of our experienced property settlement lawyers can help walk you through this uncertain time in your life.
Contact us today to set up your initial consultation or call us directly at (214) 646-3253.