Credit Cards

Credit Cards & Divorce: What You Should Know

Find out how credit cards can complicate matters when it comes to a divorce. We go over the assets and liabilities that may need to be divided between the two parties, and how a lot of subjectivity may enter the picture.

Divorce can be a messy and stressful thing in one's life. If you mix in credit cards into the equation, things get even more complicated. They can introduce both assets and liabilities into a marriage that will often need to be divided in some way. This article will go over the most problematic components, and the range of possible outcomes for each.

Credit Card Debt

The most common thing people wonder about when going through a divorce is who will be saddled with the credit card debt. The laws governing this will differ from state to state. For example, in some states the debt may be simply divided in half and distributed evenly between both parties. In other places, on the other hand, debt may be assigned to whoever brought it into the marriage. In that case, the court may look at the primary accountholder or, in some cases, go through the outstanding debts line-by-line to determine those responsible for certain purchases.

In some instances, courts have also given more debt to one party, if that party was also awarded a proportionally larger amount of assets.

How Debt Appears In the Eyes of Issuers and Reporting Bureaus

You should always make sure to obtain all copies of any court orders or rulings. Don’t assume a card company will know that your debt has been assigned to your spouse. If your ex decides to not pay his or her bills and your name was tied to the account, it may result in a bad mark on your credit report. Collection agencies may also begin trying to hunt you down. These things can negatively impact your credit score and cause a number of headaches. While having proof of a court order can't make the bank back off pursuing your obligations, it's still good to have the documentation if you seek other legal action.

Till Miles Due You Part

Today credit cards a more than just vehicles for debt. People, and couples, will open them up to earn points, miles or cash back. On many credit cards, redemptions aren’t immediate, and will accumulate over time. Some married couples may be sitting on millions of frequent flyer miles or rewards points. When it comes to a divorce, the judge may need to decide who gets these and things can get tricky.

First, know that certain reward programs specifically dictate that their points cannot be transferred to another party -- even after a divorce. If that’s the case, they may go to the main accountholder by default. If this is something that was disputed, the court or mediator may rule that other assets be given to the party without the points, to balance out the value.

That last part is what complicates the matters even further. The court may be forced to determine the value of those points or miles, which may not have an obvious value attached. You may be able to book a ticket worth $1,500 for 150,000 miles. However, that doesn’t necessarily mean those 150k miles are worth $1,500. Their value is highly dependent on a number of factors, including the ticket destination and time.

How to Avoid Complications: Tying the Knot Doesn’t Mean You Have to Tie Credit Card Accounts

One common piece of advice newlyweds get is to not combine all their bank accounts. It can, in certain circumstances, simplify some financial matters. It’s good to extend this idea over to credit cards as well. There is no reason to have a joint credit card account. Keeping accounts separate is a good way to track who is responsible for what debt, and who accumulated certain rewards or miles. Also, keeping your names off each other’s accounts keeps them separate in the eyes of credit bureaus. This will further simplify matters in the event of a divorce.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).