Community Property versus Equitable Distribution
How your credit card debt is divided in a divorce depends on the state in which you live in and how that state distributes property between spouses. U.S. courts distribute property -- which includes debt -- between divorcing spouses in one of two ways: using either equitable distribution or community property principles. The majority of states follow the equitable distribution scheme. Under this method, the court divides property based on what is fair and just, taking into consideration the individual circumstances of the marriage and individuals involved. This means the property might be divided equally or unequally. The remaining states, which include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, divide property based on the community property scheme. This system considers property under the joint ownership of both spouses, meaning each spouse owns a 50 percent share.
Before the court can divide your credit card debt, it must first categorize it. That's because most states only have authority to divide marital property, regardless of whether it's a community property or equitable distribution state. Marital property is any property that either you or your spouse acquired during the marriage. Separate property, on the other hand, is property you acquired before the marriage or during the marriage by inheritance or gift. Separate property is off limits when it comes to division in a divorce. Therefore, if you or your spouse opened a credit card during your marriage, the court is likely to determine that the debt acquired on that card is the joint responsibility of you and your spouse, unless you can prove otherwise. It is also possible that the court will consider debt acquired on a credit card opened prior to the marriage as a joint obligation. This usually happens when the card includes charges made during the marriage.
If you live in a community property state, any credit card debt that the court deems marital debt gets divided equally between you and your spouse. This is true even if your spouse opened a credit card in his own name. Although the court will presume credit card debt acquired during the marriage is your joint responsibility, it is important to make the court aware if you didn't know about the card or didn't benefit from the charges. Oftentimes, the court will take this under consideration when allocating assets and liabilities. If your spouse opened a credit and used it primarily for his own benefit, it's possible that the court will assign the entire debt to him in the divorce and assign other debts to you.
Once the responsibility for credit card debt is assigned between spouses, the court incorporates those duties into the divorce decree. Although rights and responsibilities assigned in the decree are binding on you and your spouse, they are not binding on the credit card companies. This means that if you and your spouse were joint signers on a credit card account, the credit card company can and will come after you if your spouse fails to pay the debt as required by the divorce decree. Because of this possibility, divorcing spouses often include an indemnification clause in their marital settlement agreements and divorce decrees. This typically prevents the debtor spouse from discharging marital debts assigned to him in bankruptcy while simultaneously giving the innocent spouse the right to reimbursement if the credit card companies begin to pursue her for payment.