Dividing Marital Debt and Protecting Your Credit

by Mat Camp

Splitting marital debt can be an area of fierce contention and bitterness. Like marital property, debt incurred during the marriage is usually split 50/50, unless state laws or circumstances dictate a different sort of division.

Determining who will get the debt from any joint credit cards, who will take on the payments for the expensive car you bought together or who will keep the house and mortgage that goes along with it can be incredibly complicated. Not to mention the headache that comes with trying to separate entangled finances. While many people are focused on the emotional aspects of the divorce, like property and custody issues, protecting their credit can take a seat on the back burner. And once damaged, credit can be extremely difficult to repair.

If you have a particularly resentful spouse, they can even try to rack up debt on a jointly-held account before the divorce is final, and it’s possible you could be left paying off part of their shopping spree. Or worse, with their easy access to your personal information throughout the marriage, it isn’t difficult for them to set up new accounts in your name without your knowledge — commonly referred to as stealing your identity.

Here are a few tips for ensuring your credit doesn’t take a plunge after your marriage is all said and done.

If a debt is assigned to your spouse, you can still be held liable
Many people are under the impression that if a divorce decree assigns a debt to one partner, the other is in the clear. However, the decree does not legally extend to nonparties, so creditors can still come after the former spouse if they had previously agreed to be responsible for the debt. If your spouse is unhappy with the settlement, it is possible for them to simply forgo paying in an attempt to get back at you by forcing you to pay or risk damaging your credit.

Order credit reports for you and your spouse
Getting a credit report for both parties will show all debts, both jointly-held and separate, and can help uncover debts you didn’t even know about that need to be split. Knowing what accounts your spouse has access to that are also on your own report lets you know which accounts require close attention. Also, signing up for a credit monitoring service might not be a bad idea to keep an eye out for any suspicious activities, such as new lines of credit popping up that seem out of the ordinary.

Close or freeze any joint accounts
Ideally, you would like to close any accounts that are held in both you and your spouse’s name. This will eliminate the possibility of getting stuck paying off debt from new purchases you didn’t make. However, you usually need a zero account balance, and if the debt cannot be fully paid, the next best option is to place a freeze on the account to prevent further debt from accumulating.

Pay off as much shared debt as early as possible into the proceedings
While finances and cooperation with your spouse is usually stretched pretty tight during a divorce, having fewer debts will simplify the division process. If this means taking out new lines of credit or personal loans in only your name, do it. It can save a lot of trouble down the road.

Open a separate account and change direct deposits as soon as possible
To help untangle finances, set up your own account to keep track of your own income and expenses. If you suspect your spouse may drain a jointly-held checking or savings account, speak with an attorney about your state’s laws regulating money transfers during a divorce. If it is an emergency, transfer half and speak to a lawyer ASAP — but never drain the entire account yourself.

Refinance any large loans, such as mortgages or car payments
To completely protect yourself so that a creditor cannot come after you if your former spouse defaults on a loan, you will need to make sure he or she refinances the loan. If they are unwilling to do so, it complicates matters. You will have to continue paying attention to the account, even though you are not in control of the asset, until the debt is either payed off or refinanced.

Ensure your decree includes protections
Make sure you negotiate clear penalties for missing payments and the procedures for reimbursing any expenses or attorney fees. Without specific clauses dictating what happens in those situations, it can be difficult and expensive to repair any credit damage or receive compensation.

Once the divorce is final, it is crucial that your credit remain as intact as possible while you transition from a dual-income household to a single. Additionally, if you were the primary earner before in a single-income family, you often have to support yourself as well as your former spouse. Taking proactive steps to protect your credit during a divorce can save you from suffering significant stress after everything is supposed to be over.

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