Are you prepared for divorce debt?
Too often after a divorce, one spouse pays heavily with their credit for their ex-spouse’s financial woes. Many divorcees believe that a “divorce settlement” will protect them from creditors, if their spouse fails to make payments.
The truth: The truth is that creditors don’t care how property and debt are divided in a divorce settlement. If you have a jointly held debt, the creditor is likely to pursue both you and your ex-spouse for payment, regardless of a divorce agreement that came after the debt was created.
Protect yourself: Talk to your attorney about having your spouse take financial steps that will protect you. Additionally, there are steps you can take all on your own.
Steps to talk to your attorney about:
- Ask to include a refinance as part of your divorce settlement.
- A refinance can help remove your financial liability on large debts such as a car or a home.
- Ask to include an agreed sale of assets, such as a house or car, to limit future joint liability.
Steps you can take on your own:
- Pull your credit report.
- Recognize all accounts that are held jointly and accounts where your spouse may be an authorized user.
- If you find accounts where your spouse is an authorized user, call the creditor and ask to have your spouse removed from the account.
- Document every creditor and account representative you speak with (write down names, dates, balances and phone numbers). Keep this for your records.
- Freeze accounts that are held jointly, so that no additional debt can be added by your spouse or by you.
Helpful tips:
It is not recommended to transfer your name from jointly held property that is unpaid. By removing or transferring your name from a car or home, you will no longer have the right to sell or refinance. This could be costly, because although you have transferred your name from the title, you still have a financial obligation to the creditor.
If a credit card is held jointly, both parties may be able to transfer their respective balances onto credit cards that are not held jointly. This will allow you to close the jointly held credit card. Ultimately, each spouse is left only with their obligations.
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