Divorce plays havoc with emotions – and it can also play havoc with your credit.
If you and your spouse have an amicable divorce, settling financial and credit issues can be relatively simple. But as too many have found out, a “spouse scorned” can create financial problems that take years to solve.
The first step should be trying to separate your credit obligations. That begins with getting both credit reports and checking to see which accounts are held jointly and which are in only one name. When some accounts are held separately, look to see which list the other spouse as an authorized user.
Removing an authorized user is the simplest of all the steps, and should be done by the account holder. If he or she refuses, the authorized user should contact the credit issuer in writing and ask to be removed. If they refuse, file a notice with each credit bureau.
Obviously, the reason for removing a spouse from your account is to protect yourself from “scornful spending.” An angry spouse can max-out your card and leave you to pay the bill.
Why do you want to be removed? Because if your spouse fails to pay that bill, it will show up on your credit report and could be factored in to your credit score.
If you have unused joint accounts – such as a credit card or a home equity line of credit – cancel them so that neither of you can obligate the other.
When listing joint accounts, or accounts which may belong to one but authorize use by the other, remember to consider accounts which may not be listed on your credit report – such as a doctor, dentist, or local retail store.
When a jointly owned home is involved, the spouse who stays should attempt to refinance in their own name only. However, if equity is involved, or if the “staying” spouse can’t qualify for a new loan on his or her income, selling the home may be the only safe alternative.
If you have other current joint accounts, the best course of action is to pay them off by opening new separate accounts and transferring the debt to each spouse according to the divorce agreement. But since income and credit scores often prevent this kind of division, the next best thing is to protect yourself by staying informed.
Remember – even though a divorce decree may deem one spouse responsible for specific debts, the creditors still consider both parties responsible if both parties signed the credit agreement. And in community property states, this can hold true even if only one spouse signed.
Thus, if joint obligations are divided between spouses, the divorce decree should include “what if” provisions for what happens if one of you can’t make the payment.
One common solution is the provision that you must be notified in advance, so you can make that payment.
You can also ask your lender to send you a duplicate copy of the account statement each month, or to give you access to online account records. The important point to remember is that when your credit rating is at risk, you need to know if the payments are being made.
Should you find that your spouse is not making payments as agreed and is putting your credit at risk, contact your divorce attorney immediately. The court will then step in and insist that your spouse pay your legal fees in defending yourself against claims from a creditor.
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