Divorce and Debt

During the divorce process you will be dividing not only your assets but your debts.  This does not come without risk and must be done thoughtfully and with great care.  Furthermore, since your future financial well being may be dependent on your creditworthiness, you will need to take positive steps toward establishing or maintaining a solid credit history.

Make sure that you can afford your settlement.  Leaving your marriage asset-rich and cash-poor can be a formula for disaster.  Assuming more debt than you can afford to maintain can be dangerous as well.

Serious problems can occur if you and your ex-spouse remain financially linked after your divorce.  If you have joint credit cards, the payment history relating to those cards will appear on both your and your spouse’s credit histories.  If your ex-spouse agrees to take responsibility for any debts associated with those cards, there are still risks to you – even if the cards are canceled as part of the divorce process.  If your ex-spouse makes untimely payments or otherwise defaults on the debt, these problems could haunt you for a long period of time.  Despite your divorce agreement, if your ex-spouse declares bankruptcy, creditors will hold you responsible for any joint debt.  Furthermore, until such debt is fully paid, derogatory information will continue to accrue and damage your credit, making future borrowing difficult.  Although not always possible, it is in your best interests to pay off any joint debts and close all joint accounts prior to the division of any assets.

You should obtain a copy of your credit history and review it for accuracy.  Reporting agencies should be notified of any errors so that they can correct them.  If you have not yet established credit in your name or your credit report has little or no information on it, you should try to establish credit as soon as possible.  While it is usually best to do this while married, this is often overlooked.  Still, if you find it difficult to obtain credit, it would probably be better to obtain a secured credit card than have none at all.  To obtain a credit report, apply for a credit card or obtain assistance in managing your debt.

More articles on credit and debt management:

Credit Card Stats

More information on the financial issues in divorce:

The Financial Guide to Divorce Settlement by Carol Ann Wilson

Divorce and Money by Violet Woodhouse and Dale Fetherling

Ernst & Young's Personal Financial Planning Guide: Take Control of Your Future and Unlock the Door to Financial Security, 2nd Edition by Robert J. Garner (Editor), et. al.