Divorce
The credit and money-related problems that can accompany a divorce used
to primarily affect women. However, many men are now confronting these
issues because increasing numbers of women are pursuing successful careers
and starting their own businesses. Some women are now their family's major
wage earner. This economic clout means that in some households it is the wife
rather than the husband whose income qualifies a couple for joint credit. It also
means that a growing number of women have the opportunity to begin their own
businesses. If their businesses fail, these women could create financial
problems for their former spouses. No matter how happy your relationship, it is
wise for both men and women to prepare themselves financially for the
possibility of divorce.
In this chapter I address some of the problems both sexes are likely to face
after divorce, discuss how best to deal with these problems and tell you what can
be done to avoid them.
If you are contemplating divorce, it is important that you take certain steps
before filing to help minimize any potential financial damage the change in
marital status may cause, including:
· Make sure you have good credit separate from your spouse. If you do
not, delay your divorce until you can get some credit and a bank account in your
own name. For advice about building individual credit, read Chapter 7.
· Pay all mutually shared bills and credit card debts from joint funds. That
way you do not risk the possibility of their becoming your own debt to be paid out
of your own income once you divorce.
· If you already have either joint or individual credit, obtain a copy of your
credit record from each of the big three and address any problems you may find.
· If some of the accounts in your credit file are joint accounts with negative
histories, and if the adverse information is the fault of your soon-to-be-former
spouse or the result of circumstances beyond your control, prepare a written
explanation of the reason/s for the negative information, and ask the credit
bureau to make this explanation a permanent part of your credit history. Doing
so may help disassociate you from the account's problems. It is also a good
idea to attach the same explanation to any credit applications you complete.
If you have a lawyer or a financial advisor you trust, talk with them about
what you should do to prepare for the change in your marital status.
Should your spouse file for bankruptcy while you are in the process of
divorce, it is likely that the divorce proceedings will be stopped until the
bankruptcy is completed. During this time, talk with your lawyer about how to
minimize the impact of your spouse's troubles on your financial situation.
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Accounts
Creditors consider spouses with joint accounts to be equally liable for those
accounts. Because of this, it is very important that you cancel all joint accounts
as soon as possible. If you do not, you run the risk that you will be liable for
making payments on account balances that your former spouse ran up and
cannot pay. Furthermore, if your spouse is late making payments on joint
accounts or defaults on those accounts, that adverse information will be reflected
in your credit record as well as in your spouse's as long as those accounts are
open. You may then be faced with having to rebuild your own once-good credit.
Close joint accounts by writing to each creditor and indicating that as of the
date of your letter you will not be responsible for any charges your spouse might
run up.
When you get ready to close your joint accounts, remember that if you want
individual credit with the same creditors, they have the right to require that you
reapply for the credit if your joint accounts were based on your spouse's income.
If the accounts were based on your income, however, or if either of you could
have qualified for the credit at the time of application you will probably not be
required to reapply.
Avoid negotiating a divorce agreement that allows your spouse to maintain
your joint accounts in exchange for paying off the outstanding balances on those
accounts. Remember, as long as those joint accounts remain open-whether you
use them or not you will be legally liable for them regardless of what your divorce
agreement says.
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Divorce
A spouse who divorces and does not have separate credit in his or her own
name is in a very vulnerable position. If the joint accounts are kept open, the
consumer risks becoming liable for an ex-spouse's debt. If all joint accounts are
closed or if the consumer no longer is removed from an authorized user account,
the consumer may be left without ready access to credit at a time when credit
can be especially valuable. However, if you have your own credit identity
separate from a former spouse, access to credit should be generally unaffected
by a divorce-except in the case of joint account problems. As was noted in the
section on widowhood in Chapter 7, creditors cannot deny a consumer who
shared accounts with a former spouse continued use of those accounts, nor can
creditors change the terms of credit simply because of a change in marital
status. Creditors can, however, require that you reapply for that credit if you
would not have qualified for the credit on your own at the time application was
first made. In marriages where there is a significant disparity in earnings
between spouses and the spouse with the smaller income shared accounts with
the other, the person making less money risks losing the credit.
If you reapply for credit once held jointly or apply for completely new credit,
potential creditors cannot discount or refuse to consider non-job income such as
child support and alimony. However, they do have the right to request that you
prove the reliability of these sources of income and can deny a person credit if
they judge the income sources to be unreliable. If you will be relying on non-job
income to help you qualify for credit, it is a good idea to collect and save any
documentation you may have that supports the reliability of that income. Such
documentation might include: canceled checks, legal documents such as your
divorce agreement, a notarized letter from your ex-spouse, bank deposit slips,
etc.
In evaluating your credit-worthiness, creditors also must consider the credit
history of a former spouse if you can demonstrate that your former spouse's
history reflects your history too. If that credit history is positive and if you have
no individual credit and never shared credit with your former spouse, you may
want to use this provision to build your own credit record. However, as we
indicated in Chapter 7, this is a long shot.
To demonstrate that a former spouse's history reflects yours, you may be
able to provide copies of checks you wrote to pay on accounts, letters you may
have written to creditors regarding accounts, etc. If you are on good terms, you
@ may want to ask your former spouse to write a letter to the potential creditor
on your behalf.
If you are a woman and take back your maiden name after a divorce, be
certain to let your creditors know. Ask them to begin reporting accounting
information to credit bureaus in your new name. Then wait a couple of months,
and check your credit record again to make sure that your creditors are reporting
correctly to credit bureaus.
For More Information; Order The Complete Credit Repair Kit
Bankruptcy after Divorce
In today's economic times, it is not inconceivable for your former spouse to
file for bankruptcy. Bankruptcy law may wipe out debt that your former spouse
owes you as part of your divorce agreement, but it does not cancel alimony and
child support obligations and does not wipe out tax debts. A bankruptcy can
make it difficult for your former spouse to make payments, possibly pushing you
into bankruptcy too.
Consumers living in community property states face additional problems. In
those states, both parties in a marriage are jointly liable for any debts that were
incurred during that marriage whether those debts were acquired individually or
together. That means that if a former spouse, as part of a divorce agreement,
promises to pay off all debt from a marriage and fails to live up to that
agreement, creditors have the legal right to expect payment from the other party
in the now dissolved marriage.
In such a situation, you have two basic options-pay off the debt and try to
save your own credit history, or file for bankruptcy. If you want to pay off the
debt, and if those financial obligations are sizable, it is advisable that you try to
negotiate a payment schedule with each of your creditors.
To arrange a workable payment plan, contact each creditor directly-by
letter, telephone or in person. Tell your creditors what your situation is. Explain
that you would like to meet your obligations but your income is such that you will
need to work out a schedule you that can afford.
If you do not feel comfortable initiating these negotiations, schedule an
appointment with a counselor at the Consumer Credit Counseling (CCC) office
nearest you. CCC counselors are professionals, have a lot of experience in
creditor negotiations and are well respected by most creditors.
Do not opt for bankruptcy without giving it a lot of serious thought. A
bankruptcy will remain on your credit record for up to ten years and will make it
even more difficult for you to build a positive credit record. Before you make a
decision regarding bankruptcy, talk with a CCC counselor so that you understand
all the ramifications of that step, and make sure that all other options for dealing
with your problem have been exhausted.