Credit Issues and Divorce

Even when your marriage is in fine shape, it pays to think about the possibility of a divorce in your future. Today, more marriages end by divorce than by death of a spouse, and all divorces have financial as well as legal and emotional consequences. While your lawyer can protect your legal rights, the financial aspects of the divorce need just as careful attention, because they will directly affect your future standard of living.

In divorce, who suffers more financially, women or men?  Divorce has significant impact on the financial situations of both spouses as they divide assets and establish separate households.

Women often experience greater hardship because they have custody of the children, their incomes are usually less than their ex-spouse's, and they may have accepted a minimal financial settlement during the divorce. Smart Money reported in September 1995 that 26% of women experienced a decline in their standard of living in the first year after divorce.

Effective communication is difficult during a divorce, yet the more you can separate the financial aspects, the sooner you will be able to make a clean financial break. Here is a checklist of things to talk about during the divorce process:

Discuss all the credit accounts held jointly, such as mortgage, home equity loans and credit cards. You should notify your creditors of your decision to divorce and reopen the accounts in only one spouse's name. This will also help each spouse establish individual credit records.

The Equal Credit Opportunity Act states that a creditor cannot close a joint account because of a change in your marital status. However, a creditor can close the account at the request of either spouse. The creditor may require each spouse to reapply for credit on an individual basis. With either a mortgage or a home equity loan, a creditor usually will require refinancing to one spouse.

A joint account makes both spouses legally responsible for all credit debt. Even if the divorce decree states that one of the spouses will assume the responsibility of a debt, if both names are on the account, the spouse not responsible for the debt can bec,pome legally responsible for the debt if the other spouse does not pay.

A divorce decree is a legal document between the couple, but creditors do not really care who is required to be responsible. Creditors can and will try to collect from either spouse. This is particularly important for credit cards. If the account remains open during or after the divorce, then your ex-spouse can charge large amounts and leave you with the bill to pay.

During the divorce process, make sure that all credit accounts are being paid or both credit records will indicate nonpayment or late payment. Both spouses are liable for the debt on any outstanding balance on a joint account.