Credit cards are often one of the most consistent types of debts that is dealt with in Rhode Island Divorce case.
Credit cards can pose their own divorce difficulties. Some years back, at the beginning of my divorce practice, I thought that credit cards would create the same issues as any other debts. I quickly learned from a few practical case experiences that credit cards come with their own considerations that may or may not make a difference to your client.
So what makes credit cards different?
First and foremost, because of the explosion of the internet in the last decade or so credit cards are easy to apply for and if a person has a decent credit rating they are pretty easy to get, not only in your own name, but in a spouse’s name as well.
Another aspect of credit cards is the “authorized user.” The authorized user is a person who is authorized to use the card to charge things but is not obligated to pay the credit card bill itself. An authorized user is usually placed on the credit card account by the primary cardholder and receives their own card in order to make charges against the account. It is only the primary credit card holding that is held liable for paying the credit card bill.
A third aspect of credit cards that consumers are generally aware of that can play a role in a divorce is their high interest rates. Credit card interest rates can run from 9% to 29% interest or more and can fluctuate with the market or even with the timeliness of your payments depending upon your contract with your credit card company.
One other challenge that may affect the equitable distribution of credit card debt is what I call the “shifting balance.” The shifting balance occurs when a primary cardholder, either with or without discussing it with his or her spouse will shift the outstanding balance on one credit card to an entirely different credit card that is usually offering a promotion of say “O% APR for the 1st Six Months for Balance Transfers” or “0% APR for the 1st Three Months for Balance Transfers PLUS a $5,000 Credit Line Increase for Qualified Participants”.
Now let’s take an example or two to see how one or two of these factors could affect a divorce proceeding.
Christian and Teresa get married in their late 20’s. Both of them have good paying jobs and impeccable credit. The housing market is a bit pricey so they decide to wait so they can get a house that really suits them. Things are fine for about a year or so when Teresa gets a promotion which requires her to travel overseas for business negotiations. Teresa gets a credit card offer and without discussing it with Christian she qualifies for a $10,000 credit line. While traveling become a credit card processing agent for business Teresa develops a need for fine clothing if she is to get further ahead in her career.
In a short period of time she charges up $10,000 of designer clothing which she slips into her closet in their apartment a bit at a time.
Meanwhile, the housing market has dropped somewhat and Christian wants to look at houses. Teresa tells Christian that she thinks she’ll be up for a promotion soon and it will make it financially easier to make the purchase if they wait. Christian agrees that it’s a good idea.
Teresa actually does get a promotion and immediately calls her credit card company to get a credit line increase. Her credit card company increases her limit to $22,500 and on her next tip Teresa uses up all but $200 of her credit line.
Again Teresa brings the clothing home and slips it into her closet unnoticed. The next day Teresa’s manager calls to tell her that as a bonus they are sending her to Las Vegas for five days next month.
Teresa is very excited and since Christian is working late she fills out a credit card application using his information and income and requesting a credit card balance transfer of all the monies on her card to this new card. She also indicates that she is to be an authorized user on the card.
A week later the credit card comes in the mail approved for Christian for $45,000 as the limit and it already has Teresa’s balance transferred to it so that now her own card has a zero balance.
Teresa goes to to Las Vegas and gambles the night away, using up her credit card limit. She’s not satisfied so she pulls out the card she took out in Christian’s name and gambles it to its limit. It’s not until the plane ride back that Teresa realizes the severity of what she’s done.
For several months Teresa is able to intercept her credit card bill as well as Christian’s but she is late on two of the payments and the credit card companies penalize Christian’s card by increasing the interest rate from 9.19% to 29% on everything charged over the 0% balance transfer. Teresa begins making double and triple payments on the card in Christian’s name in order to repair any blemishes to his credit but she is too late.
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