Credit Cards and Divorce in New Jersey
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Often, divorcing couples are so focused on how to divide property they don’t pay much attention to the debts that need to be addressed as part of their divorce settlement or trial. This article provides an overview of how credit card debts are dealt with in New Jersey divorces.
Dealing with Joint Credit Card Accounts During Divorce
If you're considering divorce, pay special attention to the status of your credit card accounts. If you maintain joint accounts during this time, it's important to make regular payments, so your credit record won’t suffer. As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it.
If you’re divorcing, you may want to close joint accounts or accounts this list your spouse as an authorized user. This may help prevent the hassles of dealing with additional debts that your spouse incurs after you’ve separated. However, be sure to discuss this with your spouse; you don’t want to close an account that he or she uses to pay family expenses, and incur late charges elsewhere.
It’s important to note that creditors don’t have to change your joint accounts to individual accounts. They may require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.
How Are Credit Card Debts Divided in Divorce?
When faced with questions about debts (including credit card debts) in divorce, New Jersey courts must determine three things:
- the existence of the debt, which requires proof that the debt is legitimate and does in fact exist
- the nature (character) of the debt; whether the debt is “marital” or “non-marital,” and
- the allocation of the debt, meaning how it will be assigned and which spouse should pay for it.
How to establish the existence of the debt
This is usually pretty simple – get copies of credit card statements, bank statements, escrow and loan documents, closing statements, and any other documents that show when the debt was incurred, by whom, for what, and the amount of the debt.
Some debts are more difficult to prove. In one New Jersey case, a spouse (plaintiff) claimed the other spouse (defendant) should be equally responsible for “loans” made to the plaintiff spouse’s relatives. However, there was no proof of the amount, date, or terms of the “loans,” and the plaintiff spouse admitted he wasn’t required to repay the loans until he became financially able to pay them back.
Under these circumstances, the court couldn’t find that a valid loan existed, and stated it would be unfair to require the defendant spouse to be charged with any portion of a loan, especially when the plaintiff spouse might not be required to pay anything back.
Nature of the debt – marital or non-marital?
What is a marital debt and how is it divided?
Marital debts are:
- incurred during the marriage
- incurred for household necessaries, or some other benefit for the family or couple (eg., credit card bills and any other debts related to household necessities, such as groceries, utilities, cars, clothing, necessary medical expenses, or any other marital expenses), and
- incurred by both spouses jointly, or by one spouse alone.
In New Jersey, the general rule is that both spouses are liable for marital debts, including credit card debts. The basis for this is that a creditor, such as a credit card company, providing credit to pay necessaries to one spouse during a marriage, should be able to assume that the financial resources of both spouses are available for payment.
In addition, married spouses have a reasonable expectation that their income(s) and assets are held for the benefit of the marital partnership and for creditors that provide necessaries for either spouse.
New Jersey is an equitable distribution state, which means that when courts divide property in divorce, they must consider marital debts as well as marital assets. Judges will subtract the amount of marital debt from the total value of the marital property before distributing property between the spouses. A court may also consider who has more income and then assign or proportion the debts accordingly.
What is a non-marital debt and how is it divided?
Non-marital debts include:
- debts incurred before the marriage
- debts incurred after the marriage (defined as the date the couple separated, or at the latest, the date of the divorce – courts have the authority to decide when the marriage ended for purposes of assigning debts)
- debts incurred during marriage, but not for the benefit of the marriage, and
- debts from one spouse’s dissipation (misuse) of marital funds or credit (eg., money spent on gambling, drugs, an affair, or gifts for a paramour).
The spouse that incurred any non-marital debt(s) will be assigned the debt, and, as between the spouses, will be ordered to repay it after the divorce. Courts may also consider non-marital debts as a reflection of the parties' economic circumstances when the court determines the amount and method of payment of the property award.
This just means that if one spouse incurred a non-marital debt of, say $10,000, and there are enough assets to pay that debt during the divorce, the spouse who incurred the debt may be charged $10,000 out of his or her share of the marital property assets in order to pay the debt back. The spouse that did not incur the debt won’t be charged any portion of it when property is divided.
Similarly, where one spouse dissipates marital assets, courts don’t usually require the innocent spouse to pay down the debt created by the other spouse’s misuse of funds. For example, if a credit card debt is related to one spouse’s activities, such as gambling, massages, or on paramours, a judge probably won’t force the innocent spouse to pay any part of this debt.
Can Divorcing Couples Divide Credit Card Debts on Their Own?
Yes. But, there are some very important principals you must understand before you do so. The most important information you can take away from this article is that, no matter how you and your spouse decide to divvy up debts (including credit card debts), the creditors can still come after either spouse for repayment after the divorce.
This is true even if a court orders your spouse to take over and repay a specific credit card debt: the credit card companies are not bound by the court’s order: only your spouse is. And, if your spouse fails to repay the debt as ordered by the court, the credit card company can still come after you for payment.
You can try to protect yourself in a few different ways. The first is to try and settle all debts during the divorce. You and your spouse may consider selling off martial assets in order to pay off marital debts. Then, you won’t have to worry about whether your spouse is keeping up with payments in the future.
If you don’t have enough assets to pay off your marital debts, then you can enter into an agreement with your spouse as part of your divorce settlement, which states that if he or she fails to pay off debts as promised, and the credit card companies come knocking on your door in the future, your ex-spouse will be obligated to pay you whatever amount you have to pay the credit card company; this is called an “indemnification agreement,” and should be part of your divorce settlement and/or judgment of divorce.
If you’re trying to settle debt-related issues in your divorce, you may want to contact an attorney who can draft or review proposed agreements and make sure your rights are fully protected.