Divorce brings great changes to the structure of your household. Depending upon your and your spouse's income levels, a divorce can threaten your financial freedom. Failing to properly distribute debts during divorce proceedings can damage your credit rating and lead to problems acquiring new credit in the future.
Facts
Over time, married couples commonly accrue jointly held debts. A mortgage or credit card that appears in both of your names constitutes a joint debt and appears on both of your credit reports. You and your spouse are equally responsible for repaying joint debts, even if your income level changes after the divorce or your formal divorce decree states otherwise.
Features
During the divorce, you and your spouse can negotiate to determine who retains responsibility for repaying any jointly held debts. Unfortunately, a divorce decree making these negotiations official doesn't restrict your creditors from pursuing either of you for a joint debt the other party fails to pay.
If you happen to live in a community property state, such as California, creditors may pursue you for any debts that your ex-spouse incurred during the marriage--whether those debts were joint debts or not.
Effects
The payment history on your various accounts and the amount you owe to your creditors influences your credit score. Late payments and high charges made on those accounts by a vindictive or irresponsible ex-spouse can and will damage your credit history. Should you face a lawsuit over a debt your ex-spouse was supposed to pay but didn't, the resulting judgment from the lawsuit will also damage your credit history and lower your credit score.
Prevention/Solution
To avoid credit problems as a result of your divorce, contact your creditors ahead of time and notify them that you and your spouse are divorcing. Pay off and close as many accounts as you can. This prevents either of you from accruing more debt under a joint account.
The credit bureau Experian recommends that couples ask their creditors to transfer full liability for the debt into the name of the individual who plans to take over responsibility for payments. Although creditors aren't legally obligated to agree, this is a viable alternative for those who cannot afford to pay off and close all their accounts.
Warning
If you and your spouse jointly own a home, signing a quit claim deed transfers your rights to any equity you hold in the property to your spouse. The quit claim deed does not, however, release you of liability for the mortgage. Should your ex-spouse miss mortgage payments or worse, file for bankruptcy, your credit still suffers. To remove your liability for mortgage payments, its crucial that you and your spouse either sell the property or that your spouse refinance the home into her own name before the divorce is final.
