Emily* is concerned. She is preparing to leave an abusive marriage and she’s worried that when she leaves, her husband will try to sabotage her financially using their shared credit accounts. They have a joint credit card, which has a balance in the low four-figures, but most pressing is their Home Equity Line of Credit, which has a zero balance and a credit limit in the six figures. She’s afraid that once she walks out the door, her husband will start racking up debt. Since there is more than $100,000 of available credit, he could do a lot of damage. He has been financially abusive in the past; she has no reason to expect his behaviour will be any different with her departure. In fact, that may trigger further abuse. What can she do to prevent the accumulation of more debt?
This is a question that I received from three different women this year. Their particular details may vary, but the underlying question is the same: How can you protect yourself, or at least minimize your risk, from shared debt or credit when you are going through a separation or divorce?
First things first
Let’s begin by defining shared debt and the risks that it brings to both parties. A shared debt is any debt for which you have signed on the dotted line as one of the people responsible for the money borrowed using that credit instrument. This can be a credit card, line of credit, mortgage, or any loan undertaken with someone else, such as a parent, spouse or partner.
One quick clarification: When it comes to credit cards, you are on the hook for the debt if you are a joint card holder, or co-applicant. When you first applied for the card, if you had to submit your income and other financial details, then you are a co-applicant. If, however, you are simply an authorized user of the card, then you are not liable for the amount owed; only the primary cardholder is responsible. In the case of an authorized user, the bank doesn’t typically ask you for your financial details.
So the first step is to figure out what type of card(s) you have. Are you a joint card holder or simply an authorized user? If your debt is joint, keep reading.
The real problem
Emily is right to be concerned because the problem with shared debt is that both parties are fully responsible for any debt incurred. Is your soon-to-be-ex maxing out the credit card or line of credit with his purchases? That’s your problem too, especially if he stops making payments on time, or at all.
Emily was told by a lawyer that it’s OK, she just needs to keep excellent records of the accounts – for example, a statement or screen shot showing a zero balance on the line of credit at the moment that they separated – and that everything will be reconciled during the divorce proceeding if her husband goes on a spending spree. In the end, the debt will be attributed to him.
Legally accurate; practically problematic. Here’s the thing: The bank doesn’t care that you’re getting divorced or that one party is behaving badly. They just care about being repaid and they will turn to all joint signatories to secure repayment. If both parties stop paying to duke it out – he says, “I’m not paying a penny; you left, it’s your problem” and she says, “I’m not paying because it’s not my debt” – both credit scores will take a beating. Your financial future can be significantly impaired by your ex’s behaviour if you don’t step in to do something about it.
It doesn’t seem fair, it’s infuriating, but it’s the way the system works. You don’t need to like it; you just need to understand it and make decisions accordingly.
Some options – Lines of Credit
I called three banks to discuss this problem, asking what can be done if you find yourself in this situation. They all said the same thing: While they cannot allow you to unilaterally take your name off the account, they will do what they can to help. Here’s the scoop:
- Setting up a joint debt takes two people. You can’t set up a Line of Credit in your name and someone else’s name without them present. They need to be there to sign on the dotted line.
- When there is a joint debt, it takes both parties to remove one person from that debt. This means that you can’t walk into the bank and say, “Please remove my name from the line of credit account” even if that account has a zero balance.
- However, you can walk into your branch, tell them what’s going on and ask them to freeze or suspend the account. This moves the account from Active Status to Suspended Status. The bank then places messages on the account stating that it’s suspended. This isn’t 100% fool-proof since it relies on tellers seeing the messages and refusing withdrawals or cheques written against the account, but it is your best line of defence against unwanted use of the account.
- If you want to reactivate the account at a later date, both parties must give their authorization.
- Save all statements and take regular screenshots of your account to track and record the usage.
As you go through the divorce proceedings with your lawyer, you need to ensure that you agree on a plan to separate all debt into individual accounts and close any remaining joint accounts. Remember, as long as the joint accounts exist, they are a liability for you.
You need to call the credit card issuer, explain the situation, and ask them to help limit your liability by freezing the card. Typically, the credit department issues a Letter of Non-Responsibility to the co-applicant stating that you are only responsible for the balance on the card at that date and they request that the co-applicant accept responsibility for any future charges. The co-applicant must respond within two weeks otherwise the card is cancelled. If the co-applicant agrees to take responsibility for the card moving forward, your name will be removed from the card and the bank will reassess his ability to qualify for the existing credit limit.
There’s nothing you can do about having your name on the mortgage without selling the house or having your ex buy you out, obtain his own financing, and remove your name from title. This is typically handled through the divorce process. Just keep an eye on the bank statements to ensure that the mortgage payments are being made on time. Otherwise, your credit score could take a hit.
My best wishes to anyone going through this process. It can be challenging. Remember to stay on top of all your accounts and keep detailed records.
Reach out if you have any questions.
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Joint or Separate Finances: Scenarios, Risks, and Considerations
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*Names and details are changed to protect anonymity