How To Prevent Divorce From Hurting Your Credit
The following post recently appeared in the New York Divorce Report. This article addresses one of the most important issues in a divorce, the division of marital debts. If parties have joint debt, whether it is a credit card, loan, auto loan, mortgage, or other debt, a divorce decree cannot change the relationship between the parties and their creditors. While a court can order a party to assume a debt and hold the other party harmless, if that party defaults, then the creditor can collect from either party on the debt. This means that the party not responsible for the debt may have to pay the debt or risk credit damage, should the responsible party default. The injured party's recourse is to sue under the divorce decree and attempt to recoup their losses from the divorce court. This causes financial strain, credit problems, and emotional stress in having to continue to deal with the ex spouse and the court.
The best way to avoid these problems is to require the party responsible for the debt to refinance it into their name, have the creditor release the other party (if credit permits), transfer the debt, or pay the debts with marital assets before the dissolution. The New York Divorce Report post is set forth below
Your credit rating could be hurt by divorce. As part of divorce, you distribute not only your assets, but your debts and obligations as well.
An in-artfully drawn marital agreement may provide that one spouse will assume the liability for a joint debt. However, an agreement apportioning joint liability between you and your spouse is not binding on the creditor. The creditor can attempt to collect the debt from either or both parties. As pointed out in a Fox Business article, “The mistaken assumption that you're off the hook for financial obligations can result in a series of missed payments that may trash your credit score for years.”
A well written agreement would provide that the debt is fully paid or transferred into the name of the spouse who is going to be responsible for paying it.
The Fox article does provide some useful information about protecting your credit rating:.
Begin by converting your credit card accounts. People most often miss payments on this type of debt, rather than the loans that keep a roof over their head and wheels under their feet.Next, work on refinancing your mortgage and your car loan. Granted, this is going to be more difficult, because the bank will want just one person to accept the loan in his or her name -- which may not be possible if that person's salary isn't enough to qualify for the loan. In cases like these, it might be easier to sell the car or the house, split the money and move on. That way, you're guaranteed not to have credit damages caused by a vengeful ex-spouse.
"Remember that when you're getting divorced from your spouse, you're also divorcing yourself from emotional attachment to assets," Ulzheimer said.
You would also be wise to opt out of receiving pre-screened offers for credit or insurance. A spiteful ex-wife or ex-husband may be tempted to apply for a loan in your name just to ruin your credit. Go to the consumer credit reporting industry's official Web site for details. Visit the Web site.Finally, start planning for all this at least six months to a year before you file, or as early as possible before the divorce gets ugly. Once any problems begin, you and your embittered other half will have a hard time thinking logically. If this seems like a lot of work at the front end of your separation, remember that it will save you up to 10 years of credit-related headaches in the aftermath
