Forward Thinking Family Law Since 1994

Protecting Your Financial Future

It is important to know that the debt division that you agree upon in your settlement agreement or judgment of divorce is just between the parties. It does not bind your creditors. For example, if you owe $5,000 on a credit card that is in joint names, you can agree that wife will pay all of this debt. If wife does not, then the credit card company can pursue husband for the entire debt. The reason for this is that the parties have a contract with each creditor. The contract can only be changed if the creditor agrees to do so. Since the creditor is not a party to your divorce, the creditor has no say in any changes you two make in the agreement and they are not bound by that.

Protecting your future credit requires close attention, planning and knowing where there are pitfalls. It also requires that you work closely with your lawyer who will probably know where the potential problems are. However, you need to make the information available to your attorney.

Before you finalize your divorce, be sure to exchange recent credit reports with your spouse. In most cases, only you or your spouse can order your own report. One free report each year is available from each of the three credit reporting agencies through www.annualcreditreport.com. You should go through your own and your spouse's reports carefully. Verify what open accounts you each have. In particular be certain you know about what accounts you are obligated upon. Then ask your attorney to specifically list each account and what will happen to it in the settlement agreement.

For example, if certain accounts are to be closed, state the name of the account and the last four digits in the account number in the agreement. Specify who is in charge of closing the account and the deadline for accomplishing this.

When accounts will be assigned to one spouse, the spouse who wants the account should be charged with finding out the process of how to transfer the account. For example, some credit card accounts will transfer the account to just one spouse based on a phone call. Others require both spouses to sign a form whereby one spouse agrees to give up his/her rights to the account and the other assumes all responsibility for the account. The party who wishes to retain the account should be charged with getting the form, having it completely filled out and sending it back to the issuing company, by a certain date. This process should be specified in the settlement agreement.

I generally discourage continuing to share joint accounts. The reason is that if you are each required to pay half of the balance of the Good Times Bank Visa and one of you does not meet that obligation, then the other can be made to pay all of the balance. This is because most accounts are "joint and several liability." In other words, the creditor can collect 100% from either one of you. If your former spouse does not pay on time, your credit score will be reduced. If you are made to pay the entire balance, you may be able to sue your former spouse to recover the amount you covered for them. However, this is time consuming, probably involves some legal expense and is unpleasant. If your former spouse declares bankruptcy, there may not be a way to collect what you paid on his/her behalf.

Try to accomplish account division before the divorce is finalized. If this is not possible, be specific in the agreement. Then develop a time-line that charts the deadlines for getting these tasks done. Once the deadlines have passed, order another credit report on yourself and check to be certain that the changes have been implemented and are shown on the official record. If they have not, first contact your former spouse, if he/she is likely to act on your prodding. If they won't respond to you, then contact your attorney.

Maintaining a healthy credit score requires attention and follow through. Since your credit score is used to determine whether you would be a good employee, qualify for contracts, such as leases, the interest rate you will pay on loans and credit cards, the amount charged for your insurance, it is essential that you protect yours. Divorce can be a time to clean the slate and improve your score. It can also be a time when you are at risk for a downturn in your score. With care, you can leave the marriage with a healthier financial future.