Divorce and Debt:
Before a divorce, during a divorce, and after getting a divorce you need to concern yourself with credit… credit establishment, credit files and credit scores. Though divorce and credit is a concern for both men and woman, woman tend to have the greater credit difficulty due to societal standards. Therefore, I encourage woman of any age or marital status to learn as much as possible from this and other articles.
But for all men and woman, essential credit and financial matters must be addressed when contemplating a divorce in order for either and/or both parties to fiscally survive. Even if legally divorced, until finances are divorced, there is still a partnership as will soon be apparent. Here are some key points concerning credit that should be dealt with.
Joint Accounts – Joint Responsibility
The Federal Trade commission says: “If you’re considering divorce or separation, pay special attention to the status of your credit accounts. If you 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.”
If you divorce, you may want to close joint accounts or accounts in which your former spouse was an authorized user. Ask the creditor to convert these accounts to individual accounts. 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. 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. In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.
SPECIAL NOTE: any time you open an individual account, you may authorize another person to use it. A creditor who reports (good or bad) credit history to a credit bureau, will report it in the file of any person you have named as “authorized user” as well as your own file.
BEWARE – Defaulting on a Joint Account
Regardless of any court decision, if one joint account holder defaults on a loan, I guarantee the creditor will not care who the court ordered to pay it. The creditor will definitely come after the other joint account holder. Even if declaring bankruptcy, a creditor will make every effort to reclaim their lost revenue or property from the surviving spouse.
Therefore be fully aware that if a creditor does not agree to transfer joint accounts to an individual, then both of you are still responsible for full repayment to the creditor, regardless of how you’ve agreed to split the bills in the divorce settlement. If a spouse fails to make a payment, a creditor will come after the remaining joint holder, regardless of any divorce agreement. Additionally both joint holders will have negative comments on their credit file regardless of fault.
Experian Offers Tips
Experian says, “There are several ways you can prevent credit obligations from making divorce more difficult – and reestablish your own distinct credit lines after divorce occurs. You may wish to consider the following:
1. Communicate with your ex-spouse. Make as clean a financial cut as possible.
2. Communicate with your creditors. Decide which credit belongs to whom, then ask each company and bank that extended you credit to transfer the debt to the name of the person who will be responsible.
3. During divorce negotiations, keep your joint bills current, even if you ultimately will have no responsibility for the debt. If you don’t, your creditors could become more reluctant to release one party from joint liability.
4. Ask the credit grantor to remove your spouse’s name as an authorized user or close the joint account to additional charges.
5. If your spouse runs up large amounts of debt, you should cancel as many of the accounts as possible. Inform all creditors, in writing, that you are not responsible for these debts. This may not prevent them from trying to collect, but it does show that you attempted to act responsibly.
6. Upon your divorce settlement, you and your ex-spouse might consider obtaining individual consolidation loans to cover your share of the joint bills. Pay off the joint bills with your individual loans and close all joint accounts. This helps ensure you’ll be responsible only for those bills you agreed to pay. It also will help you establish or reestablish credit in your own name. ”
Other Points To Ponder
Though critically important for surviving this terrible time, emotions and so many other issues divert attention away from personal credit and its impact. Here then is a checklist and summary for a potential divorce in order to best protect your credit and rating.
1. Get a bank account in your name only.
2. Get at least one unsecured credit card in your name only. At a minimum get a secured credit card but in your name only. (This should occur whether divorcing or not.)
3. Ask to freeze any joint accounts with an outstanding asset or liability (bank, credit card, loans, etc.) so that both signatures are required before any transactions can be made.
4. Notify all creditors in writing (and call them) Document dates and who spoken to:
5. Have joint accounts closed if a zero balance or if possible have the account placed in the primary responsible party’s name only;
6. Instruct all creditors that you want all authorized users removed except the primary holder;
7. Inform all creditors you are not responsible for charges from that point on if not in your name.
8. The primary party may have to re-qualify with the lender. This also means whoever will be responsible for a mortgage will probably have to refinance in order to remove the secondary party’s responsibility.
9. Get copies of your 3 credit reports and inform all credit bureaus when the divorce is final. Make every effort to separate your credit file from that of your former spouse.
MyVesta and Divorce.net
MyVesta.org adds the following great suggestions
“Make sure your name is listed on your utility accounts, an item often overlooked by many. When you go to get credit, they often look to see if you have a phone number in your name. If you don’t, even if you are listed in the phone book at that number, it can be problematic.
“Before signing the divorce papers, consider one addendum: change of name authorization. Crazy as it seems, many states require your ex-spouse’s signature before issuing you a driver’s license or other ID in a previous or maiden name. Men who added hyphens during marriage could encounter identity trouble, as well.”
Divorce.net offers very fitting final thoughts.
“Your spouse may be in contempt of court for disobeying a court order that requires him [or her] to pay certain bills. However, if you are jointly liable to a creditor as in the case of a mortgage or co-signed credit applications, your spouse’s contempt of court is NO EXCUSE for your non-payment. It simply isn’t a legally sufficient defense to say, “It’s no longer my responsibility because the court ordered my spouse to pay.”
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