When you get a divorce, your financial responsibilities are entered into a court order and they’re legally enforceable. Suddenly, terms like child support, spousal support, and “responsible for half of all uninsured medical costs” take on a whole new meaning.
If you fail to pay that child support payment, or if you fail to separate your joint credit card accounts, your auto loans, and the mortgage, it can be extremely difficult to obtain a new credit card or take out a mortgage in your name alone. Play your cards wrong, and you can damage good credit that took many years to build.
Protecting Your Good Credit
If you have joint debts with your spouse; for example, credit card debt, auto loans, cellphone bills, utility bills, and a mortgage, please understand that just because you get a divorce and your spouse agrees to pay off a debt, that does not relieve you from the obligation.
Even if your divorce settlement agreement says that your spouse will “be 100% responsible for the mortgage payments,” if your spouse does not refinance the house in their name alone, and they default on the loan, the bank can come after you to settle the debt. In other words, divorce decrees do not relieve spouses of joint debts after divorce.
If you remain on a joint debt with your spouse and he or she is supposed to pay it, but they lose their jobs and can’t afford to pay the debt, the bank, credit card company, or mortgage company can report the negative mark on your credit, even if it goes to collections or was charged off; the creditor can take legal action against you.
What Can I Do to Shield Myself?
If you’re getting a divorce, take stock of all of your accounts. Do you and your spouse have any joint accounts, such as credit cards, auto loans, or a mortgage? If so, you want to either close or separate all joint accounts. If you’re both on the auto loans or the mortgage, you want to refinance these loans so they are in one spouse’s name alone. If neither of you can qualify to refinance the mortgage by themselves, see if you have enough equity to sell the home and split the proceeds.
During the divorce process, resist the temptation to stop paying any of your bills, even if they’re joint. At the very least, send in the minimum payment due on all joint debts. Even if you miss one payment, it will be reported on your credit for the next seven years, which can make it hard to apply for new credit in your name alone.
If you’re given advice from friends or family to stop paying on any of your bills, know that this is bad advice! You don’t want to do anything that would damage your credit, especially during a divorce.