The emotional trauma of divorce is bad enough, but when divorce kills your credit, it can suck you into a downward spiral that can take a decade or more to recover from.

Because here’s the ugly truth few divorce attorneys seem to bother telling their clients – a divorce ends your marriage, not your shared financial responsibilities.

Even though a divorce judgement might clearly state that a particular debt is the responsibility of your ex-partner, court orders do not negate the original contracts with your creditors.

So when you walk away from the divorce court holding the paper that says s/he has to make the payments on your car/house/TV or whatever, don’t be misled. If you were a party to any of those loans, and your ex-partner misses a payment or two, you can expect the credit company to ring you and demand that you make up the shortfall.

And according to the Federal Trade Commission and the Consumer Credit Counseling Service, by law, the creditors are perfectly within their rights.

Yikes! And you thought the judge had ended the pain!

No, it’s only just starting. You see, not only can creditors come after you for payment of the arrears, the longer they remain unpaid, the more your own personal credit rating drops!

So when the little nest egg you’ve been accumulating to make a new start is big enough to venture into some new individual credit application, you may expect to be confronted with a dreadful credit rating that prevents you from borrowing at any sort of a reasonable interest rate. Or being rejected outright!

And there is no mechanism to alert you to the fact that your ex has got into financial bother, that debts are piling up against your name, or that your credit history is in tatters.

The stories are legion of people who thought their divorce court order property settlement set them free from debts and repayments, only to find some time later that they were now in debt to the tune of tens of thousands of dollars. Although they knew nothing of the purchases involved, creditors could legally pursue them for repayment.

So – how do you protect your credit during divorce?

The Consumer Credit Counseling Service lists these three steps to starting over:

  • Obtain a copy of your credit report;
  • Protect your credit by calling your creditors and ask them to transfer your joint accounts to the person who will be solely responsible for payments;
  • Establish your own good credit;
  • Pay your bills on time;
  • If you’re having trouble paying your bills, get help.

Credit Advisors says to take these steps to protect your credit before the divorce:

  • Assess which debts or accounts are your responsibility;
  • Dissolve all joint accounts – institutions will often transfer assets and responsibilities into individual accounts upon written instructions, but they may require you to cancel current arrangements and reapply individually;
  • Sell the house together and divide the profit;
  • Fairly divide all shared cash;
  • Document all of your financial arrangements and agreements

Consumer Data Industry Association says all joint and authorized-user accounts should be closed and new accounts opened separately. If a joint account remains open, you are responsible for the balance on the account despite what the divorce decree stipulates, even if you don’t make a purchase.

When the final divorce is granted, the court decree that assigns a bill to your spouse only determines rights between you and your ex-spouse. Legally, on a joint account, you are still obligated to the creditor for all accounts due regardless of the divorce decree settlement. Either spouse can be sued for the balance.

Consumers should be especially careful about an authorized-user account, which permits one spouse to use the account while the other is responsible for the bill.

Tony Martin of DC Processors of Southlake, Texas, says the first step should be to get your credit reports from all three major agencies, identify your vulnerable accounts and decide what to do with each account. You can:

  • close the account
  • freeze the account
  • remove authorized users from the account
  • leave the account alone

Ideally, you would close all your joint accounts, but that may not be desirable or possible. Closing old accounts and opening new ones, for instance, can have a negative effect on your credit score. That’s why it’s important to apply only for the credit you need, not half a dozen new cards, and to close only those accounts that are vulnerable to being misused.

In a couple of months, order your credit reports again and review them to make sure the accounts have been properly handled.

Meanwhile, make sure the bills are getting paid. Divorce negotiations can take months, and all it takes is one late payment to hurt your credit. Make sure that doesn’t happen, even if you have to make minimum payments on accounts that will ultimately be your spouse’s responsibility.

If you’re already divorced and your ex is falling behind on a joint debt, you may need to start sending in the payments yourself, or – horror of horrors – even pay the debt off entirely, to protect your credit.

There are credit repair software programs available for less than $100. They basically consist of a plan, and draft letters for the most common complaints, defences, demands and explanations. Only you can decide whether this is a comfortable option for you.

But look, I don’t play a lawyer on TV. If any of this stuff has set alarm bells ringing in your ears, do something about it. Local laws may vary, so get local legal advice.

And ultimately remember, creditors were not party to your divorce, so they’re not bound by the court rulings. They can come after you, and they can destroy your credit rating for years… on debts you may nothing about. Get your house in order, and take the simple steps to protect yourself.

Separation, Divorce, & Little Kids

Be Sociable, Share!

Tagged with: Arrears • Consumer Credit Counseling • Consumer Credit Counseling Service • Credit Application • Credit Counseling Service • Credit Rating • Creditors • Divorce Attorneys • Divorce Court • divorce credit • divorce financial arrangements • divorce joint account • Downward Spiral • Emotional Trauma • Federal Trade Commission • Financial Responsibilities • Judgement • Nest Egg • Personal Credit • Property Settlement • protect your credit during divorce • Repayments • Shortfall • Ugly Truth

Filed under: Divorce

Like this post? Subscribe to our RSS feed and get loads more!