A common divorce question is: “Should we pay off our credit cards before we get divorced, or include our credit card bills as part of the divorce settlement?”
If credit card bills are significant enough to warrant this question, you should consider making their payoff a priority. Here are five reasons why.
Reason #1: You’re most likely to have available cash beforehand
Leading up to the divorce, you’re in the best position to understand your marital assets: what they are, how much you have, etc. You’ll also have a pretty good idea of what you might be willing (or able) to sell to generate enough cash for post-divorce life (living expenses, new place to live, etc.).
As a side note, if you don’t feel like you know everything about your soon-to-be ex’s finances, are unsure about their financial affidavit, or are concerned they might be hiding assets somewhere, then you should be very deliberate in moving forward with your divorce.
After your divorce, you should have no reasonable expectation of understanding what your ex-spouse’s finances look like. If your plans include negotiating the payoff into your divorce settlement, you should reconsider.
Reason #2: Your ex could run up the expenses and leave you holding the bag.
If your credit cards are jointly held, you should strongly consider the financial situation you and your ex will be in post-divorce. If both of you are financially stable, perhaps this won’t be an issue.
However, if your ex is a spendthrift, or if they feel like they’re going to be left high and dry, then they might decide that you care more about your credit than they care about theirs. They might decide there’s really nothing to lose by racking up a bunch of credit card debt, then letting you sort through the mess.
And why would you be responsible for your ex-spouse’s spending after the divorce? Look no further than Reason #3.
Reason #3: The credit card company might be able to come after you if your ex decides not to pay their fair share.
First, a caveat: this applies only to jointly-held credit cards, not individual ones.
If you have jointly held credit cards, you should understand that the credit card companies are not bound by any divorce agreements between you and your ex. In other words, if your ex-spouse defaults on payments for your jointly held credit cards, the company could come after you for payments, regardless of what is in the divorce agreement.
Why? Because it is a joint credit card account, which means there is probably fine print indicating “that you are jointly and severally liable for legitimate credit card purchases.” If for no other reason, this should be why you should at least consider paying off all joint credit cards, if you can’t pay them all off before the divorce.
Fortunately, this doesn’t apply to individually held credit cards. So, if your ex runs up his or her own credit card after the divorce, the company can’t come after you.
Reason #4: Interest Payments
Everyone knows that interest payments can’t get much higher than credit card rates, right? The reason they’re so high is because the credit card company has no recourse—they can’t take your house, car, or anything you purchased on your credit card. To make up for it, they jack up the interest rates.
If you’re looking for sound financial advice, paying off high-interest credit card debt is as good as it gets. You can’t find any stock, mutual fund, or other security that will guarantee a rate of return as paying down your credit card debt. Period.
Reason #5: Closure
If you’re still looking for a reason to consider paying off credit cards before your divorce is final, just think of closure. Imagine the sense of closure you’ll feel knowing that there is one less thing hanging over your head from your marriage.
If you can’t imagine closure, then do the opposite. Imagine the sense of dread you’ll be feeling months (or years) from now, as you’re making that monthly payment for purchases you made during your marriage.
Paying off your credit cards before a divorce is a good way to clean the slate as you start your new life. Perhaps it’s hard to afford, or you don’t think you can swing it. Regardless, paying off your credit cards is one of the best ways you can start your post-divorce life with a clean financial slate and set yourself up for success!
If you find yourself struggling to make financial sense of your divorce, you should consult with a financial professional that specializes in divorce work. Working with a Certified Divorce Financial Analyst® is a good way to take that first step towards a more financially sound future. Schedule your appointment with Lawrence Financial Planning today. We will always give you professional advice and walk with you every step of the way. We invite you to one of our monthly Divorce Workshops. Find the details on Facebook and Instagram, or visit our website.