According to the American Psychological Association, roughly 40 to 50 percent of marriages end up in divorce. Along with the stresses of dividing assets and custody issues can come another headache: the damage of your personal credit.
Take the recent example of Boggio v USAA Federal Savings Bank. This case, the wife of a separated but soon-to-be divorced couple purchased a car. To pay for the car, she wrote a check and signed in her husband’s name. This was discovered during the divorce proceedings. Due to the fact that Mr. and Mrs. Boggio were not yet divorced, the vehicle was itemized as a marital asset.
After the divorce, the wife stopped paying for the car. Because the car was itemized as a marital asset, the bank reported the default on Mr. Boggio’s credit report.
After many unsuccessful attempts of trying to remove the information about the car loan from his credit reports, Mr. Boggio filed suit against USAA Federal Savings bank for damages under the Fair Credit Reporting Act. Initially, his case was dismissed by the courts, citing the fact that the debt was knowingly acquired prior to the final divorce.
In the end, however, Mr. Boggio’s dismissal was reversed. The Sixth Circuit Court of Appeals allowed him to proceed to trial and attempt to prove that he had not authorized the vehicle purchased by his wife. In so doing, the court allowed him to seek damages for the harm to his credit.
You Are Responsible For Joint Debts, After Divorce.
Both parties in a marriage are financially bound to any joint debts that survive the divorce until they are discharged or paid off. When large purchases or financial commitments cause debts to extend far after the divorce is finalized, disputes can (and commonly do) occur. This is demonstrated by the vehicle purchase made in Boggio.
Even if you have no responsibility for a debt under your final divorce settlement agreement, creditors may begin collection activity or adverse credit reporting against you if you opened the account with your spouse. If your former spouse declares bankruptcy, you may be left as the only responsible party and be required to pay off any joint accounts.
In some instances, dissatisfied parties will attempt to “get back at” the other spouse by simply not paying any open debts to intentionally damage their credit.
To prevent these things from happening, family attorneys should engage in a proactive effort to address these potential issues before and throughout the divorce process. Addressing these issues early in the divorce process can often result in better outcomes for both parties.
Six Ways To Plan Ahead And Prevent Credit Damage To Your Credit
While it is impossible to predict what your future ex-spouse may do after the divorce is finalized, there are things that you can do with the help of your family law attorney to help prevent these issues from happening.
Ask your family law attorney to open separate credit files for you and your spouse.
One of the most helpful services your attorney can provide you is to establish a separate file for debt and credit reporting matters. These files should include copies of credit reports for both you and your spouse. These documents will help establish a “baseline” of what your credit looks like before the divorce and can help with proving damage if your spouse takes action to harm it. These reports will also show which accounts are held jointly and which ones are the responsibility of individual spouse.
Close all joint credit accounts to new charges.
Contact creditors on all joint accounts and make sure both you and your spouse agree to stop new charges on these accounts. Don’t forget to request a written confirmation of closure from each creditor.
Discharge joint debt using existing or new individual debt.
In order to insure that neither spouse is sued for debt that is the responsibility of the other, your family law attorney should arrange to close and discharge any joint account. Joint debts can often be refinanced and transferred to only one spouse’s name, consistent with the responsibilities assigned in the divorce judgment. There may be more than one way to accomplish this and your family law attorney should be able to help you achieve a desirable outcome if you take this approach.
Change Your Account Numbers and Monitor Any Open Accounts.
Even if you leave the marriage with only your own debt, you should continue to monitor all accounts. Your former spouse likely had access to that account information and could make purchases on the account. Once a debt goes delinquent, you lose out on many options in terms of fixing these adverse credit items. The best way to avoid this is to be proactive. Ask that your creditors issue new account numbers for any open accounts and monitor your credit. Doing so allows you to maintain your options and prevent serious credit damage from occurring.
Ask your family attorney to negotiate for protection of your credit during the divorce settlement process.
In order to insure that you are protected from future credit damage, your family law attorney will need to negotiate terms that include remedies for harms by your former spouse. Your attorney should be able to help you include protections in your divorce settlement so you can remain indemnified from potential credit damage in the event that your former spouse fails to pay for their share of debts or incurs new debt in your name.