Category: Debt Division
Questions/Answers
How do I prevent getting bad credit?
Upon reaching the decision to separate, it might be a good idea to iron out with your spouse exactly who will be responsible for what joint debts. Letters can be written to the creditors asking that the liabilities be transferred solely to the name of the party that agreed to accept them. In some cases, creditors will not agree to this as they will continue to hold each spouse liable until such time as the debt is paid in full. However, in the event this should be the case, there is still a way to protect yourself from any future debt incurred by your spouse. It is also a way in which you can start and/or strengthen your own individual credit standing.
What happens to the marital debt, besides getting divided?
Some of your creditors will allow you to transfer or eliminate one spouse for the debt responsible, but this is not the case for all. You both will be instructed by the court to pay a certain portion of the debt and it is assumed that both spouses will do so in a fashion not to incur penalties and harm each otherís credit history. There are steps you can take to help protect yourself from such harm by including a clause in the settlement agreement. If the clause were broken you would have the right to take legal action against your ex-spouse.
Helpful Tips and Facts
Get a copy of your credit report.
It is important during a divorce to make sure that you minimize your credit risk. One way to do this is to get a copy of your credit report. You can go online and get one free at www.annualcreditreport.com. This will let you know if there has been debt incurred in your name that you didnít know about. If your name is on a document, even as a co-signer, credit agencies do not care if you are divorced, they will come after you if the loan/debt goes into default. So, itís always important to know about all debts that are associated with your name.
Real Estate Title and Debt Refinancing
If a marital home or other real estate property is to be retitled, be certain to complete this action in a timely manner. Until title is changed, that asset may be subject to your ex-spouseís creditors or other claims. If a decree orders a property to be quit claimed to one spouse, ensure that any mortgage note against it is also refinanced. Generally lenders will not retitle a note. Instead, you must determine if the lender will refinance the note to one individual. This most likely will involve new closing costs, and perhaps a new rate or monthly payment. Quit claim deed of a property without changing the note leaves the spouse who gives up the property responsible for the debt without owning the asset - a situation no one wants to be in.
Dividing the Marital Debt Upon Divorce
When the decision to divorce has been made, couples should gather as much financial information as possible. In a divorce, a couple divides what they own and what they owe. Any piece of information about these two sides of the coin is important.
Donít Forget to Pay the Mortgage During Divorce
Sometimes in the chaos and confusion of a separation, people forget the mortgage. The last thing a divorcing couple needs is trouble with the mortgage lender. Don’t forget to pay the mortgage on schedule.
Managing Debt - Cause of Divorce
Debt and its mismanagement are probably one of the leading causes of divorce today. Managing mushrooming debt -- when spouses live paycheck to paycheck, borrowing from Peter to pay Paul -- is like living with an insatiable monster in the house because eventually a couple sinks to neutral financial buoyancy: the point where they are spending so much money servicing their debt that a single unexpected bill sinks the boat. They simply do not have enough money left to live on.
Paying Cash While Separated
Very often when a couple separates separation and its stresses pay havoc with finances. At the very time when they should be watching their spending, a separated couple may end up adding to their liabilities with indiscriminate credit card spending. A separation is a good time to pay cash and charge nothing.
Dissolving Joint Credit Accounts
When a couple divorces, it is a good idea to pay off the debt and cancel the cards although some couples apportion it as part of the separation agreement.
A Plastic World
For a person contemplating divorce, a copy of his or her credit report is a must. Very often one spouse going into a divorce -- usually the women -- may have no credit in her name, and establishing credit and a good credit report is a must. After her divorce, a good rating will help her start on her new single life. Circumstances vary, of course, but generally a person can establish credit by demonstrating a good record of repayment. Sometimes this means establishing credit with stores via so-called "minor" credit cards before getting a "major" credit card, such as MasterCard or Visa.
Taking the Cash and Letting the Credit Go
Take the cash and let the credit go, as the poet said, is another way of saying a bird in the hand is worth two in the bush. It makes sense for some divorcing couples, particularly if one of them could die before making good all the obligations of a separation agreement.
Dividing the Debt Upon Divorce
Divorcing couples have three options in dealing with debt: pay it off when the marital estate is settled; continue to service it jointly, or divide it between the spouses. Each course has advantages and disadvantages. Most couples divide the debt and pay it off because eliminating the liability removes a friction point between former spouses.
Paying Off Debt Before Divorce
Most amicable couples divide the debt and pay it off before the divorce if possible. It simplifies things to have the debt off the table, because transmitting paperwork to the creditors is no longer necessary.
Joint Credit Accounts
When a couple separates, it is a good idea to close any joint credit accounts. Inform the credit care company of the impending divorce and put what is called "a hard close" on the account -- one that prohibits any new charges, now or later. Of course, what is owed must be paid.