In our last post, we began a discussion about the financial risks and pitfalls that can come with divorce. Most couples choose to jointly open bank accounts and credit card accounts as well as take out home and auto loans together. This makes sense when you are married and your incomes and assets are comingled.
But when you decide to divorce, splitting up these financial obligations can be a headache. Moreover, most creditors do not care that you are getting a divorce. As long as both names and signatures are on an account, both spouses can be held responsible for any debts or outstanding payments.
In addition to freezing joint credit card accounts and closing joint bank accounts, there are other steps you can take to protect your credit during and after divorce. One of the smartest moves a couple can make is to pay off debts and settle joint accounts prior to getting divorced or during the divorce. Of course, this isn’t always a possibility. You may not have the money right now or your spouse may be unwilling to cooperate.
If joint debt is still outstanding when you are drafting the divorce settlement, there are still ways to protect yourself from your spouse’s financial negligence. Rather than using the “honor system” to have both spouses pay down a credit card account, for instance, you or your spouse can choose to assume the full debt load in exchange for a greater share of assets.
If you take this route, however, try to get the debt transferred to an individual account with only one spouse’s name on it. If both names remain on the account, creditors may try to come after you if your spouse fails to make payments as promised.
America runs on borrowed money, and debt is a fact of life. However, joint debt can do serious damage to your credit during and after divorce if your spouse is either irresponsible with money or vindictive. As such, you should work with your attorney to protect yourself financially in whatever ways you can.
Source: Fox Business, “Debt and Divorce: 5 Steps to Make a Clean Credit Split,” Dawn Papandrea, July 14, 2014