Bedrock Divorce Advisors
Posts Tagged ‘credit rating’
It’s Critical to Understand How Debt is Divided in Divorce
All joint debt acquired during the marriage will almost always be considered a joint obligation of both spouses. All debt that has both the husband and wife listed as co-signers such as car loans, mortgages, and credit card debt will also be the joint responsibility of both parties. However, if your husband has debt solely in his name, in most cases, your husband will be solely responsible for it and not you.
An exception to this is in Community Property states where both parties are typically responsible for any debt acquired during the marriage, even if that debt was incurred by just one of them. States with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an “opt-in” community property state, which means that both spouses must agree to be jointly responsible for all debt.
Once you are separated, any new debt incurred will be the sole responsibility of the person who incurred that debt. You need to keep careful records of your credit card charges after you are separated so that you can prove which are yours and which belongs to your husband. It is important to note that separation is not legally recognized in every state and those that do recognize it have their own guidelines for defining the date of separation, so please consult with your divorce attorney.
Joint debt, just like marital property should be negotiated and divided during the divorce process. Typically, the debt should follow the asset that is associated with that debt. So the car loan should become the responsibility of whomever gets the car and the credit card charge for the wide-screen television should become the responsibility of the person getting the TV, and so on.
It is important to remember that even though your divorce settlement agreement identifies who is responsible for each debt, your creditors don’t care about your divorce settlement agreement and will consider each spouse to be 100% responsible for any joint debt. So if your husband declares bankruptcy or defaults on any joint debt, those creditors will come after you for full payment, regardless of what your divorce agreement states.
To avoid this possible scenario, you may want to consider requiring that all debts be paid off prior to finalizing the divorce if there are sufficient assets to do so. To the extent possible, all loans, credit cards and other debts that were established jointly with your husband should be frozen and/or closed as soon as you know you are heading for divorce.
If you have debts that need to be addressed in any divorce settlement agreement, I highly recommend that you work with one of our Divorce Financial Strategists™ to help you resolve those issues and to protect your current and future credit rating.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
Protect Your Credit Score During Your Divorce
If you are going through a divorce, you should immediately begin taking steps to protect your credit score. Your financial future depends on a good credit rating. Here are some tips for handling your finances during and after your divorce so that your credit score is protected.
Handling Joint Credit Cards and Other Debts
You should immediately order your credit report and find out exactly what debts you have. In your credit report you will see all debts that belong to you and your spouse as well as the accounts that belong solely to you. You should closely monitor debts that your spouse has access to, such as credit cards, bank loans, mortgages and home equity lines of credit. If you are concerned that your soon-to-be ex-spouse might borrow money in your name, you might want to sign up for a credit monitoring service. These services will notify you anytime there is a change to your credit history.
It is important to note that even if your divorce settlement stipulates that your ex-husband is responsible for payment of certain debts, if he does not pay them or declares bankruptcy the creditors will come after you for payment! The creditors don’t know and don’t care what your divorce settlement says. Because this was a debt that you both entered into, you’ll need to pay it if he can’t. Therefore, you may want to include remedies in your divorce settlement to cover situations like this. One way might be to make sure that joint assets are used to pay off all joint debt or have the property that is going to your ex-husband be placed in escrow until all debts are paid.
Close Joint Accounts If Possible
If possible, close all joint accounts. Most likely, you will only be able to close accounts that have a zero balance. But, you should call all credit card companies, banks or other creditors to request that the account be closed. Make it clear that you will not be responsible for any charges. You should also follow up with a letter stating that you want the account closed. Keep a copy of the letter as well as detailed notes of your phone conversations. In both the phone conversation and the letter, ask that the lender report to the credit bureaus that the account was closed at your request.
Stay Current on All Joint Accounts
It is very important to make payments to all joint accounts on time even though you are going through a divorce. Unfortunately divorce negotiations can go on for a long time and not making payments or paying late can really hurt your credit score. Your credit rating will go down if a payment is late or missed entirely, even if your spouse is assuming the debt.
Freeze Accounts that Can’t Be Closed
If you find that you are not able to close an account due to an outstanding balance, request that a freeze be placed on your account. This will prevent any further charges. You will still be jointly responsible for the balance, but no further debt can be added to the account. Remember to document all details related to this call and write and mail a letter. (Talk to your divorce attorney if your husband is using joint credit cards or other marital assets to travel with and/or buy gifts for his mistress. There is something called dissipation of marital assets and if this is something that your husband is doing, your divorce attorney will need to make that part of any discussions/negotiations).
Close Joint Bank Accounts
Most couples have a joint checking and savings accounts. These need to be closed as soon as possible, however you should talk to your lawyer before withdrawing money or closing your account since each state has rules about this. You will want to open a new account for yourself as soon as possible.
If you have questions about how you can protect your finances and credit, please feel free to contact one of our Divorce Financial Strategists™ here at Bedrock Divorce Advisors.
All content on this site/blog is for informational purposes only, and does not constitute legal advice. If you require legal advice, retain a lawyer licensed in your jurisdiction. The opinions expressed are solely those of the author, who is not an attorney.
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