Dear Your Business Credit,
I am going through a divorce and live separately from my husband. He uses credit cards for his business. Some of the cards are in his name alone, and the bills go to his new address. I'm worried that it will hurt my credit if he doesn't pay the bills on time. Is there anything I can do to make sure he does not ruin my credit rating?
I am sorry to hear what you are going through.
You have plenty of company in tackling issues like this, according to Kurt Olender, managing partner at OlenderFeldman LLP in Union, N.J., where he specializes in corporate law. "They arise in a husband and wife context and with partners," says Olender. When two people part ways after taking out credit cards or other obligations together, these agreements have to be unwound.
Olender says that your liability for your husband's debts depends, to some degree, on the laws of your state.
New Jersey, for instance, is among the majority of states that follow an "equitable distribution" scheme that says marital assets and liabilities should be divided fairly, though not always equally, in a divorce. If you live in such a state, you could try to protect yourself by asserting, through your attorney, that it would not be equitable to distribute the debts of the business to you, advises Olender. If, however, you have benefited in a material way from the business -- by for instance, living in a house that your husband's business income paid for -- that fact would weaken your claim, he says.
Nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- are "community property" states, meaning that property or debts accumulated by either partner during a marriage belong to both partners and would be divided evenly if the marriage ends. (Alaska is an opt-in community property state.
The agreements that you and your husband have signed with the credit card companies will also determine your liability for your husband's debts. "The credit card company would generally go after the signatory of the agreement, with respect to any wrongdoing or expenditures," Olender says.
If you've been married a long time and comingled all your finances, you may not remember who signed for each card. In that case, calling the card companies may help sort things out.
"If the husband filled it out and signed his name to it, then it's only he personally that is liable to the credit card company, vis-a-vis the obligations of the card," Olender says.
That doesn't give you total protection, he adds. If your husband defaults on one of his credit card debts and the issuer wins a judgment against him, it could go after your joint assets, like your house or a joint savings account, Olender says.
The best way to protect your assets from a future judgment against your husband is to make sure they're in your name only and your funds are separated from your husband's, he says.
What if you're a signer on the account? As long as the balance is zero, credit card companies will often let you close it and allow your spouse to open a new account, according to Olender. (If there's a balance, you'll probably have to make arrangements with your husband to pay it down before you can take your name off of the account).
You can gain some measure of protection by writing a letter to each credit card issuer, telling them that you are no longer living with your spouse and will not be responsible for his debts, says David Grigolla, a family law attorney based in Glendora, Calif. It doesn't matter if you have filed a legal separation or not, he says.
Make sure to read the agreements you have signed with the credit card issuers, which could also affect your liability, Grigolla says. Card issuers' rules sometimes assert that the laws of the state where the company is headquartered prevail. "Even though I may be in California, they often follow the state law of Delaware or wherever the main corporation is," he says.
If this sounds like a big job, it is. To avoid making a mistake, get some guidance from a lawyer who knows the laws of your state. Hiring one is not cheap, but it could save you a bundle in the long run.