In a divorce, you divide not only your shared assets but also your shared debts. That said, even if your divorce agreement says your ex is now responsible for certain debts, your creditors have no reason to let you off the hook. Creditors are not a party to your divorce agreement, so legally they don’t have to abide by what your agreement or order says about who is responsible. This is why any agreement or order should clearly specifies what will happen if your spouse defaults on their financial obligations and how you will be protected.
If your ex falls behind on his or her share of the joint debts, your credit rating could take a hit. The lower your credit score, the more you pay in interest. Bad credit can also affect your job and housing prospects.
Your divorce attorney will provide guidance on how to achieve a fair resolution in the division itself, but here are some things to keep in mind regarding managing your debt and protecting your credit:
Don’t accept more than your fair share of the marital debt. In North Carolina, shared assets and debt are divided on an equitable — not equal — basis. That means your spouse could potentially be ordered to pay more than half of the debt in situations where your spouse may have received a larger share of marital assets. If you were to pay off half of the marital debt before an agreement were reached, you could end up paying more than you would have been ordered to, or you risk not receiving full credit for the debts you have paid. In property division, assets and debts are generally assessed at a very narrow point in time, the date that the parties physically separated. This can get complicated in cases where parties remain living together for months and years after a decision to end the marriage and start undertaking financial obligations in anticipation of the divorce during that time. Consultation with an experienced divorce attorney during this crucial time period may provide helpful guidance.
If you think your ex is likely to get behind on his or her share, don’t just give up and pay off the debt yourself. Instead, consider asking for the account to be frozen so they can’t rack up any more charges. Any agreement should also provide a remedy for you to sue your ex or seek indemnification from your ex if this happens, as well as a penalty clause.
Close your joint accounts as soon as possible. Having open, shared accounts maintains a financial relationship between you and your ex. Keeping in mind the advice above, the quickest and easiest way to end that relationship may be to pay off all your shared debts before or at the time of the divorce.
Just as important, make sure you remove your spouse as an authorized user on any credit cards or other accounts in your name.
Begin building a credit history in your name. Your credit history may be entangled with that of your spouse, and a divorce could essentially reset your credit score to zero. Credit rating agencies need to see a track record of you borrowing and repaying money in order to score you. Start by getting a credit card and using it to pay for things you already have the money for — then pay it right away.
Continue using good credit skills. Stay in control of your spending and never use credit cards unless you can pay the entire balance that month. Monitor your bills and credit reports. There is a possibility that your ex could still access one of your accounts.
Won’t it feel good to end that last financial entanglement after your divorce?