Pennsylvania Law Monitor : Pennsylvania Lawyer & Attorney : Stark & Stark Law Firm : Yardley, Philadelphia, New York, New Jersey

Often times spouses will share joint credit cards.  That is fine - until the parties choose to divorce.  Usually, debt acquired after the date of final separation will be the responsibility of the party who accumulated that debt.

As the saying goes “an ounce of prevention is worth a pound of cure.”
As soon as you begin considering divorce or separation you need to pay special attention to the status of your credit accounts. Are the accounts joint or individual?  If there are individual accounts, is your spouse an authorized user? You should immediately consult with an attorney regarding whether to close a joint account, change it to an individual account or before canceling any authorized users card. If you choose to maintain joint accounts during this time, it's important to make regular payments so your credit record won't suffer.  As long as there's an outstanding balance on a joint account, you and your spouse are responsible for it.

In most cases the parties and their attorneys will reach an agreement as to who is responsible for what credit card debt.  But what happens when one party doesn’t abide by the agreement?  If it was a joint account, one party’s failure to pay will adversely affect both parties credit scores.  Sure the innocent spouse can bring the offending spouse back to court for violating the order, but there is no court remedy to repair a credit score.

Don’t leave any loose ends.
Make sure all joint accounts are closed and paid off prior to the divorce finalizing.  Don’t rely on the other spouse’s agreement to pay it off.  Get the money to pay off the account from another asset and make sure it is paid off and closed immediately.

By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit.

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In Zokaites v. Pittsburgh Irish Pubs, LLC a case decided in December, 2008, the Superior Court of Pennsylvania held that a judgment creditor may not receive a debtor’s membership interest in a limited liability company, unless the operating agreement of the company allows it. A judgment creditor is a person who has successfully won a judgment for a sum of money to be paid by a debtor. In Zokaites the Court held that §8924(a) of Pennsylvania’s Limited Liability Company Law makes clear that a membership interest in a limited liability company in the Commonwealth of Pennsylvania includes both an economic right and also a right to participate in the management of the business. Further, the Court held that unless the operating agreement of the company provides to the contrary, a member of the limited liability company could only transfer his or her economic rights in the company, and not his or her right to manage the company. The Court went on to state that a judgment creditor is only entitled to money to satisfy his or her judgment against a debtor, if courts allowed the transfer of the membership interests of the debtor to the judgment creditor, the judgment creditor would be receiving a right to manage and govern the company. Ultimately, the Court held that a judgment creditor is only entitled to collect future profits the debtor may earn from the company, but not entitled to a full transfer of the membership interests of the limited liability company, wherein the judgment creditor would be receiving a right to manage and govern the company.

If you or your company is a judgment creditor, it is important to understand what this case means for your collection efforts. It is important for you to obtain a copy of the company’s operating agreement, which should state what happens in the event a member’s membership interests in the company are subject to involuntary transfer. Unless the operating agreement provides otherwise, if all of the members of a company, other than the debtor, do not approve of the proposed transfer or assignment of the membership interests, the judgment creditor will have no right to participate in the management of the company or become a member of the company. All is not lost, however, as Zokaites makes clear, a judgment creditor can still attach the profits a debtor receives from the limited liability company of which he or she is a member.

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