Credit Scores and Ex-Spouses
How to Protect a Credit Score During a Divorce
Oct 17, 2009 Candice Gillingwater
A divorce decree is not enough to legally transfer ownership of joint accounts in a divorce. Other steps must be taken before the divorce is finalized to establish clear liability for nonpayment of jointly held debt.
How Divorce Can Damage a Credit Score
Joint accounts such as car loans, mortgage loans, and credit cards are common in marriages. With a joint account, both account holders are equally liable for payment of the debt. A divorce decree ordering that one spouse assume full responsibility for the debt does not exonerate the other spouse from his or her legal responsibility to the debt.
Joint accounts will continue to report on the credit reports of both parties after the divorce is finalized, no matter who is now responsible for payment of the debt. If one party ceases to make payments on debts assigned to him or her in the divorce judgment, the late payment notations will appear on the credit reports of both individuals- doing equal credit damage to both the person who is now responsible for paying the debt and the person who is not.
A divorce judgment can only assign responsibility for debt. It has no power, however, over any third party. Since creditors are considered a third party, they are entitled to seek payment from whomever originally signed for the debt. In the event that an individual ceases to make payments on a jointly held debt assigned to him or her in a divorce decree, the other party can expect the creditor to take action to collect the debt. This action may include, but is not limited to:
- Late payment notations on credit reports
- Transferring the debt to a collection agency
- Telephone calls
- Letters requesting payment
- A lawsuit against either or both parties to collect the debt
Preventing Bad Credit Due to Divorce By Transferring Ownership of Joint Accounts
Any secured debts such as home and car loans, are particularly dangerous assets to maintain liability of following a divorce. An individual is entitled to request that an ex-spouse be forced to refinance any secured debt into his or her own name prior to the divorce being finalized. This assigns full legal liability of the secured debt to the person who is assigned the debt in the divorce.
If an individual has credit trouble, he or she may not be able to refinance the secured debt and maintain the debt’s current interest rate. This is not a reason, however, for the individual to be relieved from the responsibility of doing so. A court can request that a petitioner refinance, but it cannot force a lender to approve a new loan. In the case that the individual is incapable of refinancing, the asset can be sold to absolve the liability of both parties.
If more money is owed on a home or vehicle than the current value of the asset, it is unlikely that either party will be able to sell the item for enough money to cover the outstanding balance of the loan. In this case, a court can order an asset to be sold as soon as the loan is no longer considered negative.
In the case of credit cards, consumers can request novation. Novation is a process by which a creditor agrees to relieve one party of liability for a jointly held debt. Novation is not common and is usually only granted if the individual opting to accept full responsibility for the debt has a high credit score.
Enforcing the Divorce Decree
An individual may opt to return to court to request that an uncooperative ex-spouse be required to satisfy his or her obligations as outlined in the divorce judgment. This can be expensive, since an attorney is often required in order to properly file the paperwork.
A Divorce Judgment Does Not Apply to a Creditor
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