These are some of the steps that you need to take to handle all credit and joint account matters when getting divorced.
Get Familiar With All Accounts
The first step to take, if you already haven’t done so is to familiarize yourself with all the various credit accounts that you have opened together. You should have a clear idea of what accounts are jointly held and what accounts bear your name. Some accounts simply require a signature privilege to make you liable on the debt as far as the creditor is concerned. For all practical purposes you should consider that account to be joint as well.
Usually it is considered the best possible tactic to close all the joint accounts or remove yours name from the accounts that are jointly held. This will take some doing but will also eliminate the ability of the other spouse to further rake up a debt for which you may be liable in the future. Most divorce proceedings, work towards this end, to somehow distribute the assets and eliminate joint responsibility on any debt or credit. The time period from when the decision to get a divorce is made and the actual filing of paperwork is a very important time for credit because it often continues to be accumulated during this time. A spouse that you planning to break up with may continue to use credit to purchase clothes, furniture, automobile etc., may use your primary credit account do so. It is not uncommon for his or her attorney fees to be paid through your credit or a joint credit account as well. This is why proper planning is so essential as it can prevent these unwanted charges and additional debt to create an additional burden for you.
Get A Copy Of Your Credit Report
One of the first and important steps in preparing for divorce is to pull your credit report as soon as you can. If your creditors and the credit reporting agencies have been dealing with your accounts as they’re supposed to, your credit report would indicate all the accounts that are being held under your name and the accounts that are jointly held with your spouse as well. The one account that they will not indicate is when there is an authorized user on your own account. If you do not have a record of this personally or you cannot remember, you should contact each creditor over the phone and preferably through a written letter as well saying that you no longer authorize any other users on your account apart from yourself. Your credit report however, will indicate when you are an authorized user on some other account.
Freeze Existing Joint Credit Card Accounts
One of the steps that is commonly taken is to freeze an existing credit card account. A creditor will normally refuse to close accounts till it has a balance on it. Loans such as personal loans can be frozen as well. Something as serious as a home loan account will probably have to be dealt with through litigation, to decide how to handle future payments and how is the responsibility for the mortgage payments going to be shared or divided. It is common for the house to be sold and the proceeds to be used to pay off the mortgage completely and close the account. The spouse staying back in the house may also take on the mortgage payments. Anyway, the amount that is owned on a home-loan account cannot be increased by the spouse so there is not much danger of additional liability there.
Keep Making Regular Payments On Mortgage
However, regular payment has to be ensured on the mortgage loan account which is jointly held even during the divorce proceedings till the division of the asset is finalized. If your spouse was responsible for making payments on the mortgage home loan, you should do your best to ensure that he/she continues to do so otherwise any late payment will reflect on your credit report and negatively impact your credit score. When an account is frozen, nobody should be able to charge more or increased the debt on it. This is particularly effective for a credit card account that is jointly held. Especially one that you personally are responsible for making payments on. You do not want your spouse to charge extra on it just to be malicious and leave you with additional debt burden. Unfortunately, there is no way to prevent anyone else from attempting to be open or re-activating the existing or previous account. Therefore, it is important to settle matters at the earliest possible and close the joint accounts. You should continue to review your credit file as often as 3 to 6 months after the divorce to make sure no negative data from any previous accounts is being reported.
As a general rule, all debt incurred during the marriage regardless of the reason or who actually benefits is a marital liability.
Dissolve Joint Account Responsibility
It is assumed that both the spouses are equally liable as far as creditors are concerned. One of the important financial aspects that is discussed during a divorce proceeding is how to deal with joint debts. A good plan involves one spouse taking a particular debt and paying it alone. An even better idea would be to pay off the debt using marital assets. At the end the idea is to pay off the jointly held accounts and close it so there is no negative remark on either credit report and is this no possibility of incurring additional debt by the other spouse.
Remember, revolving accounts such as credit cards can continue to be charged by your spouse if you do not close them. Make all efforts to have your spouse removed as a joint account holder if the credit card belongs to you. Remember, once the debt is incurred on the credit card, both the joint accounts are holders are equally responsible to pay it. Nonpayment will impact of the credit ratings of both the people. However, your spouse may not mind a dent on his/her credit rating just to be malicious. It is important to keep in mind that a judgment cannot command or require the credit reporting agencies to erase negative remarks on your credit report. You can ask your attorney to work out an agreement which allows you a larger property settlement in exchange for you taking over certain credit card and loan accounts so you can rely on yourself and not your ex to make future monthly payments on time.
Sell Larger Joint Assets
When dealing with larger assets like your own home and significant debts, it usually becomes necessary to sell the assets and pay off the debt completely in order to be able to close joint account. Many lenders such as mortgage lenders will not be comfortable with having the name of one of the spouses be taken off the mortgage loan payment because it increases the risk of repayment in case you happen to default in the future.
Affix Ownership for Joint Assets
There are also disagreement as to who should own the asset or the home which only leads to the inevitable decision that no one should and the house should be sold and the debt paid off. People are many times emotionally attached to their homes. However, you should bear in mind that your life will have to undergo some changes after such a major event like a divorce. It is better to move on as quickly as possible so that you can be better off financially in the long run. The advice that you would get from your accountants and your attorney will probably be to plan long term and not short-term. Even though you face difficulties in the short-term, you can climb your way to work through it and rebuild your life in the long-term.
Budget For Expenses of Divorce and Aftermath
Financially planning your budget to deal with expenses and burden of debt during and after the divorce is extremely important. This is where your professionals involved with your divorce proceedings such as an attorney and accountant can be of great help. They will be able to give you an idea of the future funds that you have coming to you from the divorce such as alimony, child support etc. They will be also able to give you an idea of the amount of liabilities you would incur as having to pay off existing debt. At no point of time do you want the divorce proceeding to damage your credit worthiness. You should aim to be able to pay off any existing debt in full, on accounts that are jointly held, using the proceeds from the divorce settlement. This includes settling the home loan from the proceeds of the sale of the home. If you are taking the home as a part of your settlement in a divorce proceeding you should ensure that your income permits you to maintain the house and does not leave you financially strained in the future.
Separate Financial Matters
An ideal outcome of a divorce settlement would be to be able to separate all your finances. There should be no joint debt, assets or credit accounts after the divorce. This may be the outcome of the judgment passed by a court as well. However, the law may require the judges to work out things in a certain manner which may not be to your maximum benefit. It is prudent, mature and advisable to just settle your dispute among yourselves and enter into a marital settlement agreement by having a discussion amongst yourselves. Try to be civil and maintain a level head as much as possible to deal with all issues of credit, and make a clear marital settlement agreement so that it makes sense to you and anybody else reading it.
Try To Do A Mutual Agreement and Settlement Out Of Court
A settlement agreement can go into as much detail as you state allows and your attorney can help with drafting it. You can spell out specifics regarding the debt and how you will manage to cover all contingencies. However, it is equally important to understand that your creditors and credit card companies are not party to to any divorce proceeding. They are not held liable or required to legally abide by any judgment passed by the judge. They can decide to recover the money from one spouse first even though the judgment decrees that the other spouse pays it off. Hence, it is once again a good idea to settle these matters amongst yourselves and deal with them as prudently and quickly as possible. It is also a good idea to communicate a marital agreement regarding his debt to the creditor.
As long as you are mentioned on the credit account as joint account holder, the creditor can come after you if your spouse defaults on the payment. As long as two people are joint account holders on the credit account, late payments will continue to affect the credit report of both the people.
Pay Off Debt On Secured Loans and End Debt Liability
When it comes to secured debts such as mortgage and car loans, once more the bottom line should be to be able to pay off the debt and close the account. You may want to divide the debt off cleanly. The option will be to liquidate or refinance the asset so that only one person’s name is associated with the ownership. However, what is best for you may not be always possible to do. For example, you may find yourself in need of financial resources after a divorce before you can meet certain financial obligations. For example, if you cannot sell the house now, you should provide in a written agreement that it will be sold before a certain date or upon a contingency such as when all the living children reach the age of 18. It may not be possible to refinance the home, as a single signatory without your spouse. Many mortgage lenders are un-willing to have a single spouse on a large home loan because it increases the risk of default.
Deal with Credit Issues Even Though It May Seem Trivial
Going through a divorce is a great emotional strain for most of couples. The fact of the matter is that issues like who opened the MasterCard account, who actually uses and pays the bills on a credit card, etc. may not seem like the most important things . There will be many other emotional issues on your mind which concern your life more deeply.
However, the hard fact of truth is that credit issues are something that can come and bite you later on in life. The hard fact is also that even if you were not responsible for the financial planning of your home, you will need to have your debt and credit matters set in order so that you do not end up with additional financial liability. No matter what angst or woes you may have against your spouse, it is usually in the best interest of both to settle the financial matters as best as possible. While the credit is issues may not be a priority during a divorce, you should make them see that they do not get ignored. This is something that can be dealt with in a clinical manner as opposed to the emotional and psychological factors involved in a divorce. So take care of this aspect of a divorce so that you are not burdened unnecessarily any more than you already are. It is one way of ensuring a better and a happier future for yourself.