Credit Cards and Divorce: What to Do With Your Cards During a Split
Sorting out your credit cards during a divorce can set you up for a smooth return to managing your credit as a single person.
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Of all the things that need your attention when you’re going through a divorce, credit cards are probably low on your list. But making the right moves early on can set you up for a smooth return to managing credit as a single person.
Start by identifying any credit card accounts that are open in your household, as well as the debt and rewards associated with them. Both the debts and rewards will go to the negotiating table as both of you decide how to divvy them up before closing the accounts or removing any authorized users.
Alison Pahlkotter, a financial wellness expert with GreenPath Financial Wellness, suggests enlisting a divorce attorney or credit counselor for help making a clean financial break from an ex-spouse. “Getting a divorce decree is the first step to disentangle finances … but there’s work to do after that,” she says.
Take stock of your credit card accounts
Even if financial infidelity — dishonesty in the handling of joint money — wasn’t a factor in the breakup, it's essential to know how much debt is owed on any credit cards in your and your spouse’s name. While divorce rules vary by state and even by county, it’s generally true that debt accrued in marriage — even debt racked up by one party — is considered a joint marital obligation that must be divided up over the course of divorce negotiations, says Regina McCann Hess, a certified financial planner and certified divorce financial analyst.
“Debts like mortgages, car loans and credit cards are assets,” says Hess. “That debt can be split in any number of ways.”
To perform an audit of your credit cards, request a credit report from each of the three credit bureaus. You can get a free credit report every week from www.annualcreditreport.com. Go over those reports carefully. They'll show a complete list of your credit cards and loans, along with each account's status and whether the account is jointly owned. To get the most up-to-date balances, you may need to log in to the online accounts or call the credit card issuers.
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Get a new credit card
“Divorce can do damage to credit scores,” Hess says. For example, if your ex removes you as an authorized user from a credit card account that has been paid in full every month, your own credit scores could dip because all of those good credit habits are wiped from your credit report. If that card has been open for a long time, it could affect your average age of credit, which in turn could affect your scores.
That’s why Hess recommends applying for a new credit card before official divorce proceedings begin. By doing so, “You’re coming from a seat of power rather than from the other side of the divorce with just one income,” Hess explains.
Credit card issuers consider credit scores and household income when deciding whether to extend a line of credit and the size of the credit line, so you may have a better chance of getting a top-tier card with a decent credit limit when you apply for a card while you’re still married.
Then, when you have that new credit card in your name only, use it responsibly to build your credit score: Pay balances on time and in full, and keep your utilization rate below 30%.
Divide your unused rewards
Like the credit card accounts themselves, any rewards earned with those cards are considered a marital asset, so you’ll need to decide who gets them. Credit card rewards can be valued based on what you can redeem them for. If a rewards program lets you book $250 worth of travel for 25,000 points, for example, that makes the points worth 1 cent each. The dollar value of the points is included with the value of the rest of your assets, and from there you negotiate how your assets will be divided.
You could redeem rewards before you’re removed from the credit card as a joint owner or authorized user. Once you’re no longer a part of a credit card, you lose access to its rewards, Hess says.
Otherwise, though, each loyalty program has its own rules about whether and how points can be transferred to another person.
What different loyalty programs allow
Chase Ultimate Rewards® points, for example, can be transferred for free to another member of your household who has a Chase card that also earns Ultimate Rewards® points. American Express Membership Rewards, on the other hand, can’t be transferred this way, even in the event of a divorce.
Airline rewards programs may charge a fee to transfer points, as is the case with American AAdvantage, Delta SkyMiles, United MileagePlus and Southwest Rapid Rewards.
JetBlue allows groups to pool TrueBlue points, and the terms of that program allow you to leave a group with the remainder of your own unused miles (though others may have been able to use the miles you contributed while you were in the group).
United also allows groups to pool miles. However, if you leave the group, you forfeit the miles you contributed.
The rules of hotel loyalty programs also vary. Marriott Bonvoy allows free point transfers to other Bonvoy members, but it may also want to review some of the legal documents from your divorce if you’re moving points because of a court order. You can transfer Hilton Honors points for free in 1,000-point increments, but there are annual limits on how many points you can send and receive, as well as how many transfers you can initiate. World of Hyatt points can be transferred by submitting a form signed by both parties. IHG® Rewards Club points can be transferred for $5 per 1,000 points.
Depending on which loyalty programs you each participate in, you may have no choice but to keep your own points, or you may opt to keep your own points to avoid paying transfer fees.
Remove yourself or your spouse from any credit card
For some of the credit cards in your wallet, either of you may be a joint owner or authorized user. Cancel jointly owned credit cards, and remove any authorized users from cards that are in your name only. Ask the other person to do the same for you, but if they won’t oblige, you can do it yourself.
Joint account owners
Though joint credit card accounts are increasingly rare, some issuers still allow them. In this arrangement, each cardholder is legally responsible for any debt on the card. If you don’t want the credit card anymore, both spouses need to agree to close the account. If debt remains on the jointly owned card, you’ll have to pay it off or transfer it to another card before canceling the card.
Settling joint credit card accounts is a lot of work, and it may be tempting to leave the cards as-is, but beware. If your ex-spouse racks up a ton of debt and then defaults, issuers can go after you for payment.
Authorized users
Authorized user credit relationships are much more common than joint accounts, and it's much easier to remove an authorized user from a credit card. Contact your card’s issuer and ask about the process for removing an authorized user. It may be as simple as asking customer service or clicking a few buttons online. Issuers also allow you to remove yourself as an authorized user, so you don’t have to wait for your ex-spouse to do it.
When removing the former spouse from a credit card account, you might want to request a new account number at the same time. That way, the existing account stays open, but even the sneakiest of exes won't be able to use the old account numbers to make purchases.
Whether removing someone as a joint owner or authorized user, Hess suggests letting the ex-spouse know about any changes. “Give the other person time to get their ducks in a row,” she says. “Even in a contentious divorce, you want to be as communicative as possible.”
Adds Pahlkotter: “Everything’s easier if you have a good working relationship with your ex.”
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