Separation & Divorce
How do I protect my credit when I get divorced?
Divorce decrees do not relieve either party of joint financial responsibility. The purpose of divorce is to split off emotionally and financially from your ex-spouse.
But if you aren't careful, your spouse's handling of your joint accounts can haunt you for years. If you had joint debts which existed before your divorce, and if these accounts are not both paid off and closed, you are just asking for trouble.
One very common misconception is the divorce order overrides whatever loan contract was signed.
For Example: Bob and Sue both signed for a credit card. They later get divorced and the judge orders that Bob is responsible for paying off the credit card. That agreement is only between Bob & Sue, and as long as Bob pays everything is fine. But the credit card company was never a part of… signed off… or agreed to their divorce arrangement. And they still have a contract with Sue’s signature on it. So if Bob stops paying that credit card company can still go after Bob or Sue! They don’t care who pays and it will affect Sue’s credit. So what Sue should do to protect herself is pay the credit card company and then take Bob back to court to get reimbursed for his violation of the divorce decree.
Although some divorcing couple are definitely out to get each other, most problems with joint accounts prior to divorce are caused by ignorance, not malicious intent. But…don't think that just because your split is amicable that problems can't occur. Taking precautions can protect both of you. Here are the typical joint accounts which many married couples share and what you need to do with each BEFORE you get divorced.
Your Home/Mortgage This is the most important item to which to devote your attention. It is vital to not walk away from a divorce with the mortgage in both your names. Here are possible ways to cope with joint home ownership, listed in best to worst order of preference:
1. Sell the home. Make sure the sale occurs before the divorce, especially if your ex is living in the house during the divorce proceedings. If you just have an agreement to sell (the house has not yet sold) at the time of your final divorce, and your spouse is secretly opposed to selling it, he/she can make it very difficult for a realtor to show or list the home, dragging out the time to sell indefinitely. In the meantime, you are responsible for the payments and your credit is in jeopardy. It's actually best to have the house empty during the sale of the home, so if possible, both of you should be out of the house before it goes up for sale.
2. Have one spouse refinance the home in his/her own name. If one spouse is to keep the house after the divorce, insist that your soon-to-be ex obtain new financing in his/her own name. You can't just call up the mortgage company and say "Hey, I'm getting divorced, can you take my spouse off the loan?" Your bank is going to insist on having them go through the formal loan process to qualify. If he/she is not able to qualify for financing on his/her own, maybe a relative can co-sign for them? Do not let the final gavel sound on your divorce papers before the house has been through the refinancing process. Having your spouse show you loan approval papers is not enough; last minute glitches which prevent loans from closing occur every day.
3. If selling or refinancing isn't an option. This is the worst possible option, try to avoid it at all costs. If moving out of your joint home is going to cause hardship to your ex (and/or your kids), and he/she is unable to refinance the home on his/her own here are some things you can do to protect yourself:
* Don't take your name off the title. If you take your name off of title, you are removing ownership but not loan responsibility, a very dangerous situation to be in. Yes, this means that you will not be able to split the equity in the home at the present time. Place a limit on how long your ex can stay in the house before it has to be sold or refinanced.
* Notify the mortgage company of your change of address and have all statements and coupon booklets sent to your new address. In this way, if your ex is late on payments, you will be notified and you can get the chance to make up the payments.
Auto/Car Loans This is the second most important item to which to devote your attention, as car loans are the second most important kind of financing on your credit report after your mortgage. It is vital to not walk away from a divorce with any loan in both your names. Here are possible ways to cope with joint car ownership, listed in best to worst order of preference:
1. Sell the car. Make sure the sale occurs before the divorce. If you just have an agreement to sell (the car has not yet sold), you are responsible for the payments and your credit is in jeopardy. If the car is upside down, it's still better to sell the car at a loss than risk your credit. The difference between good and bad credit can be worth thousands of dollars in interest and fees per year on future financing.
2. Have one spouse refinance the car in his/her own name. If one spouse is to keep the car after the divorce, before you get divorced, insist that your soon-to-be-ex obtain new financing in his/her own name. You can't just call up the car finance company and say "Hey, I'm getting divorced, can you take my spouse off the loan?" Your bank is going to insist on having him or her go through the formal loan process to qualify. If he/she is not able to qualify for financing on his/her own, maybe a relative can cosign for them.
3. If selling or refinancing isn't an option. This is the worst possible option, try to avoid it at all costs. If your soon-to-be ex is unable to refinance the car on their own, here are some things you can do to protect yourself:
* Don't take your name off the title. If you take your name off of title, you are removing ownership but not loan responsibility, a very dangerous situation to be in. Yes, this means that you will not be able to split the equity in the car at the present time. Place a limit on how long your ex can have possession of the car before it has to be sold or refinanced.
* Notify the car finance company of your change of address and have all statements sent to your new address. At the very least, inform them that you wish to be notified if the payments get in arrears. In this way, if your ex is late on payments, you will be notified and you can get the chance to make up the payments.
Joint Credit Card Debt: Most people think that "closing out" joint credit card accounts is the end of the headache. Unfortunately, though, they forget that the account is not really closed out until any balances are paid off.
Even worse, it's very easy to reopen accounts if the balances are being paid on time – creditors encourage this. If you cannot pay off and close the credit card balances immediately check with your lawyer handling your divorce, maybe he/she can come up with some options and then make it a part of the divorce proceedings. Here is a summary of most common solutions for getting rid of it joint debt obligations as part of a divorce.
1. Sell a joint asset (perhaps your home - kill two birds with one stone?) and pay off the debt, close the account.
2. Apply for separate credit card for each of you and have agreed-upon amounts transferred into these sole and separate accounts.
3. If your spouse can't qualify for credit on his/her own, get one of their relatives to co-sign on a new card, transfer the balances. If you have debts which don't fit into the above categories, use this simple rule of thumb - after a divorce all of the joint debts you had should be closed and paid off, all of the joint assets you owned should be sold. No exceptions. Unfortunately if you have already divorce and the past joint debt has already caused you problems LEXINGTON LAW FIRM are attorneys that specialized in helping people repair their credit at very affordable rates. If you are multiple months behind on the rent or mortgage payments, as well as past due on credit cards, car payment, and etc. then damage has already been done to your credit.
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