Debt and divorce: 5 steps to make a clean credit split
If you're in the process of getting a divorce, you
know that things can get complex when it comes to dividing assets and debts. It's
even more complicated if one person doesn't follow debt repayment obligations spelled
out in the divorce decree. But there are some things you can do in advance to increase
your chances of a smooth split.
First, it's important to know that creditors don't
care about your divorce decree. If you and your soon-to-be ex shared joint credit
card accounts, for example, you're both legally on the hook for making sure
the debts get paid, no matter what you agree on in the decree.
"Your creditors are not parties to your
divorce," says Jeffrey Anderson, a Dallas-based divorce lawyer with
the firm of McCurley Orsinger McCurley Nelson & Downing, in an email. "You can put
in big, bold letters that your ex-spouse is going to pay the credit card debt
from the joint card, but if the ex doesn't pay and you send your decree to the
credit card company, they'll likely laugh before they throw it in the trash."
To keep things civil and protect your credit
score, follow some simple strategies for parting ways with joint debt, for
better or worse.
1. Cut off future charges. Figure out which accounts belong
to whom. "If you signed the application for a credit card, line of credit
or loan, it's in your name," explains Anderson. "That includes those applications
signed jointly with your spouse."
Authorized users are a different story -- they usually
are not responsible for the account's debt. That being said, as soon the "D"
word is suggested, it's best to remove an authorized user from the account so he
or she can't access it. There have been plenty of cases where a spiteful spouse
runs up a credit card once the relationship goes sour.
For joint accounts -- ones in which you both are
equals -- you can't simply remove the other person or close the account if
money is still owed. What you can do is request a freeze or a hold be put on the card
so no new charges can be made, says Anderson. Once it's paid off, you
can close the account.
2. Settle up ASAP. Finding a way to pay off any
joint debts prior to or during the divorce can save a lot of headaches, advises
Marilyn Timbers, a financial adviser
with ING Financial Partners. Get them paid off before you even draw up
the divorce papers, if possible.
"If there is any cash or savings available, get
rid of that debt before divorce papers are finalized," Timbers writes in an
emailed response to questions. "One possible option is to use some of the
proceeds from the sale of a family home to pay off debt."
3. Look for and shut down
old accounts. The
best way to be sure that your good name is protected is to go over your credit
report with a fine-toothed comb to make sure that your former partner is not
listed on any cards that are also in your name. It could be that you
once opened a charge account together and haven't used it in a few years. If the account remains open, the credit is still available and can turn into a potential problem
You can put in big, bold letters that your ex-spouse is going to pay the credit card debt from the joint card, but if the ex doesn't pay and you send your decree to the credit card company, they'll likely laugh before they throw it in the trash.
McCurley Orsinger McCurley Nelson & Downing
4. Transfer the
balance. If one
party agrees to assume a debt, rather than taking their word for it, move the
debt over to an individual account using a balance transfer, says K. Mitchell
Kelling, attorney and board-certified specialist in family law with Horack
Talley in Charlotte, N.C. "I always tell clients if they are
concerned about their credit rating (and they should be!), that they should
assume the debt obligation for a credit card even if it is a joint obligation,"
Kelling explains via email.
You can then work with the attorneys to make an
agreement that offsets the expense by giving the paying party a greater
percentage of any marital assets, she added.
5. Create backups. If your spouse is the one who
agrees to take care of the balance but it's not being moved to his or her
individual account, try to close any possible loopholes. "I always include
a provision in my settlement agreements labeling the debt as a support
obligation that is nondischargeable in bankruptcy," writes Jarrod
Oxendine, partner at the Atlanta law firm of Clark, Oxendine & Sauls, in
prevents a spouse from filing bankruptcy against his/her obligation and
discharging that obligation in bankruptcy court, thus leaving the other party
as the only remaining party responsible to satisfy the debt in the eyes of the
As with all aspects of divorce, laws vary by state,
so be sure to seek the advice of your attorney and financial adviser. Take it
from Timbers: "Debt
adds complexity to divorce. The best scenario is to clear debt before the divorce
See related: After divorce, ex leaves joint debts unpaid
, They divorced, he died, she's stuck with his $40,000 student loan
, Credit Card Help: Why women need their own credit
Published: July 11, 2014