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3 credit card issues to address during divorce

On Behalf of | Jan 27, 2025 | Divorce

Property division matters are among the most common complications that divorcing spouses experience. It is relatively common for couples to find themselves disagreeing about the division of their assets and their financial obligations.

Spouses have to work out arrangements to divide their home equity and their retirement savings. They also need to address their debts. Any financial obligations taken on during the marriage are typically part of the marital estate. For example, credit cards can easily become a point of contention during divorce negotiations. When that happens, spouses often have to work out arrangements that address the three issues outlined below.

Determining what debts are marital

Separating financial responsibilities isn’t as simple as people assume. Spouses may think they simply have to look at whose name is on the account. However, even in scenarios where each spouse has their own revolving lines of credit, the balances due may represent marital debt.

The date when the spouses took on the debt is typically the most important consideration when determining if it is part of the marital estate or not. That being said, the intent behind the debt is also an important consideration.

In cases involving financial infidelity where one spouse intentionally hides their financial conduct from the other, secret debts are sometimes not part of the marital estate. The same is true for debts taken on to intentionally diminish the value of the marital estate before property division proceedings and debts related to extramarital affairs.

Allocating financial responsibility

After determining what debts are part of the marital estate, the spouses have to work out an agreement to share responsibility for those debts. Spouses can use credit card balances as a way of balancing out the division of property. However, people do need to keep in mind that their spouses could fail to pay the debts as they agree or might file for bankruptcy after the divorce.

In some cases, the best solution is for the spouses to liquidate marital assets to pay off marital debts. Other times, one spouse may take on more marital debt to protect themselves against the risk of the other spouse defaulting to avoid their responsibilities.

Addressing rewards

Modern credit cards often offer valuable rewards. Credit card reward programs allow people to secure statement credits or refund the purchase price of airline tickets. The rewards accumulated during the marriage can potentially be worth thousands of dollars and can influence the distribution of other property. Spouses generally need to determine what the rewards are worth and then discuss how to divide them.

Understanding the debt-related issues that can arise during property division negotiations in a high-asset divorce scenario can help people better protect themselves. Credit cards can easily become a source of conflict, and spouses may need to prepare themselves for such challenges ahead as they begin the negotiation process.