How you handle debt during your marriage can make a big impact on your credit. Your personal credit score also will be affected by how you handle debt during your divorce and after. Lacey Noel, a network attorney with ARAG, discusses three questions that will help you determine what to do in your situation.
How will your state laws affect you?
If you live in a community property state, both spouses may be held responsible for debts incurred during the marriage, regardless of whose name is on the account. A community property state is one in which all property acquired by a husband and wife during their marriage becomes joint property even if it was acquired in the name of only one partner. (The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.)
For example, one woman had to pay off a debt that she knew nothing about (her husband had opened this account in his own name during the marriage). While it may not seem fair, that’s how the credit laws work for such states.
What you can do: Make sure you know what debts both you and your spouse have. If you think there may be accounts you are listed on, but don’t know about, get a copy of your credit report and ask your spouse about any accounts you don’t recognize.
How much debt can you pay off while you’re still married?
Ideally, try to pay off as many joint debts as possible before the divorce is finalized. This makes settlement negotiations easier and helps make for a cleaner break. However, this is not always possible due to other debts, including spousal and child support. When you are getting divorced, figure out who can realistically make payments on any accounts on which you’re listed.
What you can do: Consider closing joint accounts that were opened in both of your names and remove your spouse as an authorized user on your own accounts. You also may want to ask the creditor to convert these accounts to individual accounts.
Remember, creditors aren’t obligated to convert such accounts, so you may need to apply for credit on an individual basis. The creditor will then extend or deny you credit based on your new application.
Our office gets many calls after the divorce saying that the ex-spouse was supposed to pay and now the creditor is coming after them. The creditor does not have to follow your divorce decree. They can go after whoever is listed on the account.
Knowing this ahead of time may make you view the distribution of debt differently. Make sure your divorce decree includes a provision that will protect you and require that you’re reimbursed if your ex defaults on a separate account.
How will you be affected by debt after divorce?
If paying off the debts or converting joint accounts to individual accounts during the divorce wasn’t possible, be sure to monitor the accounts that you are responsible for. If you notice that payments are being made late, you might consider making the payments yourself to protect your credit. After all, bad marks can stay on your credit report for seven years.
What you can do: Talk to your ex-spouse to see if you can help with payments. While this may not always work, if you both can talk about it, it will save credit scores. If your divorce decree says that your ex-spouse has to reimburse you if you paid debt they were responsible for, then you can take them back to Family Law Court to get that payment. Remember, however, that process will take time, energy and money paid for attorney fees.
Review your free credit report annually.
The Federal Trade Commission (FTC) encourages consumers to review their credit reports every year. Clear up misinformation as soon as possible to keep from jeopardizing your credit rating or stalling your application for any credit purchase.
What you can do: You can get one free credit report a year from each of the three major credit bureaus by visiting AnnualCreditReport.com. This is a free site that will not ask for your credit card number or try to sell you additional services.