How Is Credit Card Debt Handled in a Divorce in NY?

One of the most complex parts of divorce proceedings is dealing with financial obligations. In New York, marital property includes both assets and liabilities, which include debts.

For those who are going through a divorce in New York, it's important to understand how credit card debt is handed. Understanding how the law works can help both parties prepare.

Said Ibrahim and the team at Divorce & Family Legal, LLC can help answer questions divorcing spouses might have about credit card debt and how is inheritance handled in a divorce in NY?

New York’s Equitable Distribution Law

New York is an equitable distribution state. This means that when a couple gets divorced, the court will divide all marital property, including debts, fairly...but not necessarily equally. To decide what is fair, the courts will look at several factors. These include:

• How long the couple was married

• Each spouse's income and property

• Each spouse's contributions to the marriage

• The health and age of each spouse

• Future financial obligations and needs

• Wasteful dissipation of assets by either spouse

It's also important to mention that only marital debt and marital property is subject to division. Debt accrued separately, before or after the marriage, is not included.

Marital vs. Separate Debt

In a divorce, one of the things that must be decided is the difference between marital and separate debt.

Marital debt is debt incurred during the marriage regardless of whose name is on the credit card. Of course, a joint credit card account would count. If the debt benefitted both spouses or the household, it is typically considered marital debt.

Separate debt is debt that was incurred before the marriage or during the marriage for purposes that was unrelated to the marriage. For instance, if one of the spouses used credit cards or personal loans to fund a secret gambling addiction, the debt would be considered separate debt.

Common Scenarios in Dividing Credit Card Debt

Here are some real-world examples of how courts divide debts acquired during a divorce.

Joint Credit Cards

If both spouses have their names on a credit card balance, or they have co-signed loans or bank accounts, it's almost impossible for one spouse to take sole responsibility. If Spouse A takes on the debt and agrees to pay it in the divorce proceedings, but doesn't do that, creditors can still come after Spouse B if Spouse A doesn't pay up.

Authorized User Accounts

If Spouse A is the primary account holder, and Spouse B is an authorized user, only Spouse A would be legally responsible for the debt. However, the court still may assign part of it to Spouse B to pay if it was used for marital purposes.

Individual Credit Cards

Even if a credit card is in only one spouse’s name, it may still be deemed marital debt if it was used for joint expenses. These include groceries, rent, utilities, family vacations, or children’s needs. In such cases, a New York divorce court may divide it between both spouses.

Fraudulent or Wasteful Spending

New York courts do not look favorably upon wasteful dissipation of marital assets. If one spouse used credit cards irresponsibly, such as on drugs, gambling, or affairs, the court might assign that debt solely to them instead of it being divided equitably.

How Courts in New York Allocate Credit Card Debt

During this complex process, the judge will look at how credit card debt should be divided. There is legal guidance here, as well as New York law to consider. A credit card company has to be paid back, and fair division is important.

Some of the things a judge will consider include the nature of the debt, when the debt was incurred, who benefitted from the debt, and the financial circumstances of each spouse. Again, this is referred to as equitable division of the debt, but that doesn't mean equal division.

Contested cases are common, and the courts might do one of several things:

• Give the higher-earning spouse more of the debt

• Offset the debt against other assets, for instance one spouse might get more equity in the home in exchange for more debt.

• Order a lump-sum or installment-based payment

Also, it's important to keep in mind that if one spouse has a significant financial benefit over the other, they might be ordered to pay a larger share of the debt. This is specifically the case when the debt was used for the marital home or needs.

Creditors and Divorce Decrees: A Word of Caution

Another thing that must be considered is how the contract with the creditor is handled. When a person applies for a credit card, they create a contract with the credit card company. This still applies. If a person co-signed for a credit card, and their ex-spouse stops paying, the credit card company will likely aggressively pursue payment from both spouses.

The best solution here is to work to pay off joint accounts before the final judgment. If the couple can't get debt paid, another option is to refinance the debt into one of the spouse's names as part of the divorce settlement agreement.

This is always an emotionally charged process, which is why it's very important to work with a divorce attorney during this time.

How to Avoid Post-Divorce Credit Card Problems

Dealing with debt during a divorce is an overwhelming process. There are some things that divorcing spouses can do in order to ensure that things aren't contentious between the parties post divorce.

Pull Credit Reports

It is highly recommended that everyone going through a divorce pulls their credit report. This will show all open accounts including any individual account, joint accounts, accounts where the other spouse is the authorized user, missed payments, high balances, mortgage information, and other factors concerning finances.

Close Joint Credit Cards

If possible, it's also recommended to pay off any joint accounts before beginning the divorce process. If that's not possible, another option is to freeze the accounts to prevent more charges.

Document Spending

It's also best practice to track money that is being spent. This way, each spouse has a list of what they are spending personally and what is necessary for the home or family. This also will help an attorney argue which debt is shared and become marital debt and which should not.

Work with a Divorce Attorney

Speaking of an attorney, it's necessary to work with a professional divorce lawyer. They can help to ensure that the division of debt it fair and that their client's right are handled as they should be. For more information, our divorce lawyers may be able to help.

Can a Person be Responsible for Their Spouse’s Credit Card Debt?

It's possible that one spouse can be held responsible for their spouse's credit card debt. A person might be responsible if the debt was incurred during the marriage, if it was used for household or family purposes, or if both spouses signed up for the account.

A person will likely not be responsible for their spouse's debt if the debt was acquired before the marriage, if it was used for personal expenses, or if the person is not listed as an account holder or co-signer.

Though this sounds black and white, there is no telling what a judge might do during the process. This is another reason to have an attorney who understands the laws in New York and will work to protect the rights of their client.

Credit Card Debt and Legal Separation

Even if a person is legally separated, they could still be responsible for credit card debt unless the separation agreement specifically addresses debt division. In these cases, a legal separation agreement can protect the person from future liabilities.

Negotiating Credit Card Debt in a Divorce Settlement

Not every divorce has to be decided by a judge. Many couples resolve debt division through negotiation or mediation. When creating a divorce settlement, it’s wise to:

• Allocate specific debts to specific parties

• Include payment timelines

• Specify what happens in case of default

• Get debts refinanced or paid off when possible

An experienced divorce attorney will help their clients by negotiating an agreement that minimizes the amount debt a person might be responsible for.

Don’t Let Credit Card Debt Destroy Post-Divorce Life

How is credit card debt handled in a divorce in NY? It depends on whether the debt is marital or separate, who incurred it, what it was used for, and the financial standing of each spouse. Even though the court strives for fairness, there’s no one-size-fits-all solution. Protecting a financial future starts with understanding rights and working with a skilled divorce attorney.

For anyone facing or considering a divorce, it's best to get an attorney as soon as possible. The team at Divorce & Family Legal, LLC is ready to help. They can work with their clients on how to handle debt and to put them in the best possible position following their divorce.