Divorces are almost always nasty affairs and not only because of the emotional turmoil they can put a couple through. They can also wreak havoc on your credit. Dealing with debt may very well be the last thing on your mind as you try to rebuild your life after a divorce. After all, you are likely to be overwhelmed with moving, finding new housing, new custody arrangements, and a myriad of other personal problems. However, to overlook the important fact that you need to take steps to separate your debt and protect your credit during a divorce would be a huge mistake, a mistake that could very well haunt you for many years.
Joint Debt and the Divorce Decree
When you get a divorce the judge presiding over your case will make a final ruling and judgment order which officially terminates your marriage. This ruling and judgment order is known as a divorce decree. One of the issues which will be addressed in your divorce decree is the division of any debts acquired during the course of the marriage.
If possible, couples may opt to pay off all debt prior to filing for a divorce. However, since most couples are not financially capable enough to completely eliminate their outstanding debt at one time it is much more common for your divorce attorneys to determine who will be responsible for each individual debt during the settlement negotiations which precede your divorce. For example, joint credit card balances may be divvied up between both parties or may be assigned to only one spouse. Car payments, mortgage payments, personal loan payments, and any other indebtedness will likely follow suit.
Unfortunately, just because your ex-spouse is assigned responsibility for a joint debt in your divorce decree does not necessarily mean that he or she will be able or willing to continue to pay the account in a timely fashion. If this occurs, and it often does, it can spell big trouble for your credit reports and scores.
Why Lenders Do Not Care about Your Divorce Decree
Your lenders will not be present for your divorce proceedings and, even if they were, they would not care about which debt was assigned to whom. Instead, lenders remain concerned with whom they entered into a contractual agreement in the first place. In other words, your divorce decree will not absolve you from your contractual liability on any debt. Joint debt is still joint debt, even after you’ve finalized your divorce.
How to Protect Yourself
The best defense for your credit is always a good offense. If at all possible the wisest course of action is for couples to maintain credit independent of each other even during marriage. However, if your credit reports are already littered with joint accounts then there are still a few steps you can take to protect your credit during a divorce (though none of them are particularly pleasant in nature).
Aside from the suggestion above to pay off all jointly acquired debt prior to the divorce, it may also be possible to sell off jointly acquired assets (such as your vehicle or home) to a third party. This solution works best in an amicable divorce, of course, as you and your ex will have to sell joint assets together and cooperate to split any proceeds accordingly.
Another option which may work to protect your credit is to have your ex-spouse refinance any jointly acquired loans for which he or she will be assuming payment responsibility. For example, if your ex is keeping a home and the mortgage is in both of your names your ex could refinance the loan into his/her name only. Of course, in order for this to be a viable solution your ex would have to be willing to take out the loan and would need to be able to qualify for the new loan based on his/her income and credit alone.
Finally, if none of the suggestions above are workable options then you could also consider two less attractive solutions: pay for the debt yourself (even if assigned to your ex in the divorce decree) or file for bankruptcy. If you personally pay for any loans assigned to your ex then you will have the ability to ensure that your credit reports stay protected. The lender will have no problem accepting your payment because the divorce decree is utterly irrelevant to the lender anyway.
The bankruptcy option is not going to protect your credit. In fact a bankruptcy has the ability to inflict considerable damage on your credit reports and scores. However, a bankruptcy can protect you from some of the more unpleasant side effects that accompany broken loan agreements such as judgments and even wage garnishments.