Family Law

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 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.

Christian goes to the bank to get pre-qualified only to discovery that a card has been taken out in his name with a less than perfect payment history and a balance of just under $45,000. He is worried that his identity has been stolen but when he calls the credit card company and they fax a few statements to him he realizes that the charges all coincide with the places Teresa has been going.

Christian gets home and confronts her about the credit card in his name. Teresa denies it adamantly for about 2 hours and then admits what she did. He asks her if there is anything else he should know about and she tells him "No".

Christian is very upset and very hurt that his wife actually stole his identity and damaged his credit when she knew how important it was to him and how necessary it was to get a house. Christian asks Teresa to meet him at the bank tomorrow to see if they can still prequalify for a house. Teresa refuses and says she likes their apartment.

Christian goes to the bank the next day and the bank representative pulls Teresa's credit at his request. Christian sees the credit card and the poor payment history. The banker makes it clear that there is no way Christian and Teresa will pre-qualify for a house based upon the outstanding debt and payment history. The banker suggests that it will take several years to repair the damage that has been done.

The banker recommends that Christian file a fraud report with the credit card company and file a report with the Rhode Island State Police. Christian doesn't want to do that.

Christian is crushed by Teresa's betrayal of trust and he files for divorce.

What issues might arise regarding this credit card debt?

1. Does it matter that Teresa's action in opening an account with Christian's information is a criminal offense?

2. Can Teresa claim that her clothing purchases were for her employment which benefited the marriage and therefore were marital debt?

3. Since Christian refused to fill out a fraud report and a Rhode Island State Police Report has he conceded that the debt belongs to him? Or has he conceded that it's marital debt?

4. If Teresa can legitimately take business tax deductions for the clothing she purchased as well as the gambling losses during her business bonus trip, should that affect the amount of debt that Teresa should be responsible for in the divorce?

5. Is there anything the family court judge can do to repair or minimize the damage done to Christian's finances and his credit?

6.  Can any of this be considered marital debt when Christian had no idea this debt was accumulating?

7. If Christian thinks he shouldn't have to pay anything, what is the most likely amount he could be ordered to pay and where does that amount come from?

There is at least one more issue that affects Christian significantly in this whole scenario. Can you identify it? It could make a huge difference financially to Christian. If you were Christian, wouldn't you want to find it.

Authored by:

Christopher A. Pearsall, Esquire
PEARSALL LAW ASSOCIATES
571 Pontiac Avenue
Cranston, RI  02910
Phone:  (401) 354-2369

Attorney Pearsall's practice is focused almost exclusively in the areas of Divorce and Family law.

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