Account Ownership is the Issue

Regardless of which party is held responsible to repay a certain debt, the lender will still hold the account holder liable. That account holder could face damage to their credit rating if the other party fails to pay or misses a payment. In addition, if the payments are not made, then the lender could file suit with the account holder.

The home is usually in both party’s names, which can pose challenges if one party cannot afford the monthly mortgage payment. If a car is given to one spouse but remains in the other spouse’s name, then the account holder is ultimately responsible for making sure that the other spouse properly makes their payments.

Where credit card debt gets dicey in a divorce is that there are often more disputes about whose debt is charged on the cards. Sometimes a spouse has access to an account that was only in the other spouse’s name.

Primary Cardholder vs. Authorized User

One or both spouses may be listed as a primary cardholder. A primary cardholder would be the applicant and the co-applicant if both spouses signed for the account on the same application. In this case, both spouses would suffer credit damage if the account was not properly repaid.

A spouse that is a joint account holder but is not tasked to repay the account following the divorce should appeal to the account issuer to be removed from the account. This requires that the other account holder has sufficient credit on their own to become the sole account holder. If the lender does not feel that the other spouse has sufficient credit or ability to pay, then they may deny your request.

An authorized user can easily be removed from the account. It is as simple as calling and inactivating the card used by that authorized user. The authorized user would then have no legal responsibility to the lender to repay the account.

Spouses should definitely consider the impact of their divorce on their ongoing credit needs. It is unfortunate when one spouse can continue to damage another spouse’s credit even after a divorce.

In one extreme example, I encountered one spouse who had bad credit so the other spouse signed for a car. A year later, they divorced and she was granted use of the vehicle and was required to continue making the payments. However, she stopped making payments on the vehicle. She even went as far as buying another vehicle to drive while the existing car sat with payments in arrears. The vehicle was repossessed, and he had to negotiate a repayment schedule with the lender. Fortunately, the lender was a credit union and they limited the negative credit reporting as a result of the incident. Most lenders will not be so lenient!

In most situations, you should demand that you have control of the payments that are in your name. If a financial settlement must be made to balance the negotiations, then that could be a way to keep it equitable.

Credit card debt and divorce is a tricky subject that requires careful consideration of legal liabilities as well as the normal process of divorce. If you are concerned about how to divy up debt, you should make sure your divorce lawyers understand the ownership of the accounts.

Credit Strain

Many cardholders that experience a divorce can tell you that they had trouble making their minimum payments on credit cards and other loans. Often, the money they have to live on does not go far enough to cover these preexisting debts.

The results can include late payments, delinquency fees and default. Many divorcees end up filing for bankruptcy protection because they cannot handle their new financial situation.

As long as the cards are solely in your name, then at least you have some control over your destiny. However, not all credit cards are solely in the name of one spouse.

What if the Card is in Your Spouse’s Name?

If a credit card or loan is in your name, then you need to understand that in the eyes of the law, you are ultimately responsible for repayment of that debt. This fact does not always coincide with the ruling of a divorce judge, since they focus more on splitting assets and debts equally.

If your ex-spouse is in charge of repaying a debt that is in your name, then you are exposed to a serious credit risk. If they are unable or choose not to repay the debt, or even simply make late payments, then your credit can be ruined.

Sometimes the ex-spouse cannot afford the payments. Other times, they fail to honor their financial responsibilities out of spite, knowing that it could affect you in a negative manner.

How to Protect Your Credit

When coming to an agreement over financial responsibilities, find a solution that keeps you in charge of your debts. It may be better to receive cash payments so that you can repay a debt in your name. Otherwise, you cannot always count on the other spouse to make those payments.

If you hold a joint account, talk with the lender about removing your name from the account. As long as your ex-spouse has reasonable credit, your request has a better chance of being granted. If a joint account has a zero balance, then this can be easily granted.

Make sure that your attorney and the judge or mediator understands the importance of being able to control your credit moving forward. Otherwise, the costs of divorce can be far greater than you ever realized.

You could have trouble getting approved for a new apartment or home purchase. That next job opportunity may dissolve due to a poor credit check.

The results can be devastating, and the damage can occur in as little as 1 month. It could take up to 7 years or more to repair the damage done from a messy divorce. Remember that despite what the divorce decree states regarding the repayment of marital debt, you can be sued by a lender for nonpayment of a debt in your name!

Most divorce court judges ignore who is legally responsible for paying a debt. The results can be disastrous to both parties.

First of all, divorce court judges fail to acknowledge that existing credit contracts supersede divorce decrees. A spouse may be shielded from legal action (judgment) by a creditor if they can show that their Ex is responsible for the payment. However, this does nothing to protect their credit from damage.

Divorces can get ugly. Sometimes one spouse will intentionally cause problems for the other as retribution for previous acts. One of the most common forms of this retribution is to stop paying on a debt that they are responsible, but that they know is in the other spouse’s name.

The impact of this can be devastating to all parties involved. Some divorces result in the awarding of certain marital assets to one spouse in which there are still payments due. The spouse receiving those assets may fail to continue making payments on them as a condition of the court.

This failure by the court to recognize the importance of credit records can cause severe hardship for affected parties for many years down the road. A divorce can ruin a credit record, causing a spouse to miss out on new home ownership opportunities, inflate their car payment and even deny them a job.

If you are facing divorce, understand that your creditors will hold you responsible for your debts regardless of what the judge decides. It is usually in your best interests to control the assets for which you still owe money.

Credit and financial problems do not end with the divorce decree. For many people, this is just the beginning.

Intentional Damage

Many ex-spouses harbor a grudge, and may intentionally cause financial hardship to their Ex. Sometimes this can include maxing out joint credit card accounts. Other times, it can include skipping payments on joint assets, such as a home or vehicle.

For those who are fairly well-off financially, they may be able to pay off these accounts and prevent credit problems. Most people though have difficulty covering all of the liabilities, especially if they have the added burden of alimony or child support payments.

How to Protect Yourself

If you are facing divorce, you must immediately recognize that creditors generally do not care about court orders. They revert back to the initial contract that you signed with them.

This means that if you cosigned on your spouse’s car loan, you are responsible for making sure the payments are made on-time. If he or she decides not to pay, you must make the payments until the debt is satisfied.  Otherwise your credit report will suffer.

First, you should immediately remove your spouse’s name from any joint bank and credit card accounts. You may find it easier to close the account and open a new one just in your name. If your Ex is an authorized user, you may simply remove their privileges. Arm yourself with any court orders in order to persuade creditors to comply with your requests.

Second, establish a free fraud alert with each of the three main credit bureaus. Do this especially if you suspect your Ex is planning retribution.

Third, work with the lender to remove your name from any asset where your Ex-spouse retains ownership and is responsible for payments. If your Ex has good credit and a healthy debt-to-income ratio, this should not be a problem. Be prepared for any resistance by working with the lender for a resolution. If your Ex does retain ownership of a home or vehicle in which you are a cosigner or co-applicant, understand that you are responsible for making sure the proper insurance premiums are paid on those assets.

Fourth, do your part to avoid escalation. You no longer have to get the last word in. Many divorces end up costing thousands of dollars in attorney fees arguing over hundreds of dollars in debts and assets.

Fifth, make sure that you make all of the payments that you are able to afford. Your secured loans (house and car) are the most important. Consider selling any asset that you cannot afford.

Finally, learn your lesson. Half of all marriages end in divorce. Keeping bank accounts, credit card accounts and smaller assets in only one name can prevent such problems. Coincidentally, this can also prevent financial problems, such as bank overdrafts, for married couples.