Divorce raises a host of complex emotional and financial issues. As you navigate the divorce process, it is important to have an understanding of your debts and credit accounts. Here’s what you need to know.
Understand Who Is Liable
There are two types of credit accounts – secured and unsecured.
A secured credit account means the account is attached to an asset, such as a car loan or a home mortgage. An unsecured credit account means that no asset is attached to the account, such as a credit card.
Any credit cards that are in your and your spouse’s names are considered joint accounts. You will be jointly liable for them. What you may not realize is you can be considered jointly liable if you have ever used the card and signed your name to the charge slip or receipt.
That’s why it is important to make sure you know which spouse (if not both) is liable on the credit card account. Find out the below information, then speak with your attorney about what to do next:
- Are you an authorized signer or authorized user on the credit card account?
- Are you a vested user or the primary borrower or account holder on the credit card account?
- Are you and your spouse both vested users (also called co-borrowers, or joint account holders) on the credit card account?
If you are only an authorized signer or authorized user on the credit card account, and you believe your spouse will take steps that will negatively impact your credit, you may contact the credit card company and ask that your name be removed from the credit card immediately.
If you are a joint account holder with your spouse, you are both jointly liable as you are both considered a vested user or co-borrower on the account.
If you are the primary borrower or account holder, and your spouse is the authorized signer or authorized user, you may want to have your spouse’s name removed from the credit card account, but you should speak with your attorney prior to taking action, as doing may violate Local Court Rules.
Contact the Credit Bureaus
The three nationwide credit reporting companies are TransUnion, Equifax and Experian. All three credit bureaus have set up a central website, telephone number, and address to use to obtain your free annual credit report from all three at the same time. That website is the only website that is officially authorized to fill orders for your free annual report from all three credit bureaus: AnnualCreditReport.com.
If you are unsure about the best approach to take, the Federal Trade Commission website has reliable information regarding free credit reports. When in doubt, you should reference that website as it will reflect the most updated information regarding credit reports and guidelines to help avoid scams or imposter websites.
When you receive your credit reports, you should keep copies of it and any correspondence you receive from the credit bureaus.
After you’ve gathered the facts, provide them to your attorney. You may want to organize the information yourself first, listing all accounts that are currently open, the creditor’s name, contact number, account number, type of account, status, balance, minimum monthly payment, and who is vested or the primary account holder (joint account holders = both spouses vested; individual = one spouse is vested and other spouse is authorized signer/authorized user).
Establish Credit of Your Own
If you do not have a credit card in your name only already, it is probably prudent to have a new credit card in your name prior to the divorce taking place to establish credit on your own.
Know the Limits of Post Dissolution Agreements
It is important to remember that a divorce judgment does not override any agreement you have with a creditor. This means that, for any accounts on which Spouse A and Spouse B are both vested and jointly liable, although a judge may order in the divorce decree that Spouse A is ordered to pay the balance owed on a certain credit card or secured credit account, if Spouse A does not do so it will impact the credit score of both parties.
This is why it is important to discuss all of the above with your attorney and keep your information received from the credit bureaus during the entire process organized and up to date. There should be clear terms set forth in any settlement agreement related to all credit cards or secured credit accounts on which you and your spouse are both joint account holders, that includes specific terms as to how to remove liability from the spouse who was not assigned the debt.
At Raza Family Law Solutions, we practice family law effectively guiding clients through dissolution of marriage, modifications of prior judgments, and resolving child custody disputes. We also help families take a different approach to divorce with mediation and collaborative work. Contact us for a consultation at (314) 314-5505.