Distribution of credit card debt after a divorce is made by the court based on when the debt was incurred and what it was secured by. However, whether the credit card companies will honor the court’s finding of debt distribution is another issue completely.
Technically, the character of credit card debt after a divorce is determined according to the intent of the lender. Consequently, unsecured credit card debt incurred during marriage and before separations are usually community property because the lender is generally deemed to have been relying for payment on the spouses’ earnings, which are community property. The Bank of Cal v. Connolly case discusses this in detail.
However, if a credit card taken during the marriage and before separation was secured by a separate property then the characterization of who the debt belongs to depends on who is the owner of the secured separate property. If the security interest was a spouses separate property, for example, a house that one spouse inherited prior to marriage, would make the debt stemming from that security that individual person’s separate liability. The key here is whether the lender intended to rely solely on the separate property vs. the community earnings.
The second issue is whether the credit card company will honor the court’s findings. It is quite common in a divorce that the parties will distribute debt as part of a settlement agreement or a court will order who the debt belongs to after trial. Regardless, the reality is that the credit card companies will try to collect from both spouses. The reality is that the credit card companies will try to collect from both spouses regardless. Hence, in a situation that there is a settlement agreement it is imperative that the settlement agreement include a provision requiring the party that is responsible for the debt to indemnify the other party. The provision will not stop the credit card companies but it will provide the disadvantaged spouse to recover from the other party.
To learn more about debt distribution or other family law and divorce topics visit the Core Law Group blog at www.www.corelawgroup.com/blog or call one of our divorce attorneys at 949-505-2479.