Divorce is a complex maze of emotional, financial and familial issues. With that being said, it is not uncommon for some issues to receive more attention than others. For example, many going through the divorce process fail to give the proper attention to credit and debt issues until those issues turn into big problems post-divorce. Below are a few tips and things to consider regarding how to safely sever the credit connect to your soon-to-be ex-spouse to ensure that credit problems don’t hinder you from moving on financially after divorce.
1. Check your credit report. Even if you are not going through a divorce, checking your credit report annually is a good idea. In the context of divorce though, checking your credit report is essential because doing so will not only remind you of where you stand as it relates to making major purchases like a home or a car, but it will also give you a listing of all of your open accounts. Armed with this list of both individual and joint accounts, you can then take advantage of the tip listed immediately below.
2. Pay off joint lines of credit and close joint bank accounts. If possible, it is advisable to pay off all joint lines of credit and close joint bank accounts either prior to initiating the divorce process, or do so during the settlement phase of your case. Closing all joint accounts is advisable because it eliminates confusion over who will pay which account and how each account will be paid post-divorce. Closing all joint accounts will also eliminate the possibility that one former spouse’s credit will be negatively impacted due to the other spouse’s failure to pay an account he or she was ordered to pay. Alternatively, if it is not possible to pay off all joint lines of credit, negotiate which spouse is to pay which account, and then contact the credit account holder to have them transfer or refinance that account into that spouse’s name solely.
3. Anticipate potential problem areas when drafting your divorce settlement agreement. As mentioned above, if it is not possible to close all joint credit accounts prior to divorce, effort should be made to refinance any jointly held debt into the name of the spouse obligated to pay that debt. Once the parties agree how the joint debt should be apportioned, this agreement should be memorialized in the Marital Settlement Agreement. Additionally, the settlement agreement should clearly state each party’s obligation to refinance debt for which they are obligated into their name solely. Another safety precaution that may be taken is to include a contingency clause in the settlement agreement addressing what should be done in the event one former spouse’s plan to refinance marital debt is unsuccessful.
4. Divorce decrees are between you and your ex-spouse, not the bank. A divorce decree is an order of the court that finalizes a divorce between two parties and outlines each party’s obligations post-divorce. This decree is legally binding on both ex-spouses. However, it is not legally binding on former spouses’ lenders. Put another way, even if a divorce decree states that husband is obligated to pay the couple’s joint mortgage, if husband fails to pay the mortgage, the mortgage company may go after both husband and wife for payment. Thus, it is absolutely important for both spouses to either completely sever the credit connection, or put into mechanisms in place in their settlement agreement to protect themselves in the event one former spouse defaults on a joint obligation.