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TheStreet Open House

Dealing With Credit Card Debt When Getting a Divorce

NEW YORK ( LowCards.com) -- Credit card debt is a factor to consider during a divorce. You aren't just separating your lives, but your finances as well. If you do this correctly, you can avoid a financial mess and go on with your life. If it is done incorrectly, you could have a financial disaster that ruins your credit and you will pay much more than lawyer fees.

Here are some credit card issues to address if you are going through a divorce:

1. Get a complete picture of your debt.

Get a copy of a credit reports from all three agencies for you and your spouse. Make a list of every open credit account and whether it is a joint or individual account. You may be surprised to find active accounts that you didn't know existed.

2. Close joint accounts.

Joint accounts are held by you and your spouse together, and both of you are equally responsible for the debt. The creditor reports account activity to the credit bureau in both of your names. This affects the personal credit score for both individuals.

Each person is responsible for the debt, regardless of how the debt is distributed in the divorce. If an account is left open, your ex-spouse can add more debt, make a late payment, miss a payment, or default, and you will also be held responsible. It will not only be costly for you, it can hurt your credit score and trigger a rate increase for all of your credit accounts.

By law, a creditor can't close an account because of a change in marital status, but the account can be closed at the request of either spouse. However, a creditor does not have to change a joint account into an individual account. They can require you to reapply for credit on an individual basis. They will treat this as a new application and will either accept or deny your application.

When you close the account, notify the credit card company about the divorce with a certified letter. Ask them to provide a current account statement and tell them that you do not intend to be held liable for any debt accumulated after the date of the written letter. Request that they put the account on inactive status so that no new additional charges may be added and stipulate that once the balance is paid in full, the account is to be closed completely. Follow up with a phone call to your credit card issuer.

If you close an account with an outstanding balance, you still have to pay off the balance. Create a payment plan and make sure that you continue making payments on time so you won't hurt your credit score and incur the late fees. Monitor your account each month to make sure your ex-spouse is also making the correct payment. Pay off your balance as quickly as possible.

If one spouse is assigned the credit card debt, close the joint account and roll it into a new account in the spouse's name.

3. Remove names from each other's accounts.

Close all joint accounts and have your name removed from accounts that will continue to be used by your spouse. This will limit your responsibility for new debts from by your spouse (you will still be responsible for old debts incurred up until that point). If your spouse is an authorized users in any of your accounts, revoke the authorization. Send the request by certified mail.

4. Pay off the credit card debt before the divorce is final, even if you have to liquidate marital assets.

This will prevent the possibility of future financial problems. If your ex-spouse declares bankruptcy, then the credit card company will turn to you for full payment.

5. After the divorce is finalized, monitor your credit report to see if any errors or problems pop up from the joint credit you had during your marriage.

More on the credit cards:

It's time to talk credit cards with your college-age kid

Handling debt after the death of a spouse

10 financial tips for newlyweds

--By Bill Hardekopf

Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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