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When Joan divorced several years ago, her ex agreed to pay off the couple's $20,000 in credit-card debt. They made the agreement part of their official divorce decree.
That, Joan thought, was that. Except every couple of months since then, creditors have called her because her ex has missed a payment. Despite the divorce agreement, she's still on the hook, and all the late payments have trashed her credit.
"I just assumed my responsibility ended" once the divorce was final, said Joan, a Los Angeles homemaker who asked that her last name not be used. "But it turns out that's not true."
Many divorced people learn the hard way that creditors don't care how property and bills are divided in a divorce. If a debt was incurred in a joint account, both spouses are responsible for paying it back.
Don't expect a phone call
Your agreement with your creditors predates your split, explains divorce attorney and financial planner Amy Boohaker of Sarasota, Fla. You can't force a creditor to abide by an agreement you make later with your spouse.And not every divorced person gets a phone call to notify them that their ex is in arrears. It was only after Atlanta resident Tony Martin pulled his credit report, for example, that he learned his ex-wife had failed to pay the mortgage on the family home she received in their property settlement. Since his name was still on the loan, the foreclosure will remain a major blot on both of their credit reports for seven years.
In an ideal world, divorce attorneys would alert the clients to these dangers and help them protect themselves. In reality, the discussion may never happen. A couple may not use an attorney, or the lawyer may not be fully aware of the credit problems an irresponsible or vengeful ex can cause.
You need an action plan
"How many divorce attorneys sit down with their clients and talk about how they're going to handle joint debts?" Boohaker asked. "They let (the clients) go off and solve that on their own."Martin's experience prompted him to help start a business to help people protect their credit in a divorce. The business, DC Processors of Southlake, Texas, contacts creditors and arranges for accounts to be closed or frozen.
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Shutting off the tap before a divorce is final, Martin says, can prevent years of headaches afterward. But even if it's too late to close that particular barn door, you may still be able to contain the damage.
Here's your action plan, starting with unsecured accounts, such as credit cards and personal loans:
Identify your vulnerable accounts. You need to track down each and every credit account your spouse could access, either as a joint borrower or as an authorized user. ("Authorized users" are typically added after an individual account is opened. Unlike joint borrowers, authorized users aren't contractually obligated to repay any charges they make.)
In addition to the accounts you use frequently, you'll need to look for ones you haven't used for years, such as all those department store cards you opened to get 10% discounts.
You can search through your old paperwork to find these records, but it's probably quicker and more effective to get your credit report from each of the three major bureaus -- Experian, Equifax and Trans Union. Or you can get all three reports consolidated in one here, since one may list credit accounts the others missed. Then:
- Make a list of all the accounts that are listed on your reports as "open." The credit report will show whether the account is joint or individual, but may not indicate whether there are other authorized users. For that, you typically have to ask the creditor directly.
- Find account numbers for each open account. You'll need these when you call the lenders, but your credit report will list only partial numbers. Now's the time to drag out your old paperwork and start sifting.
- Get contact information for each creditor. Customer service numbers are typically listed on the back of the credit card or printed on monthly bills. If you don't have a card or a bill, try the number listed on the credit report. (Although this is often a number meant for lenders only, you may be able to get them to connect you to customer service.) If all else fails, use an Internet search engine to track down contact information for your creditor.
Decide what to do with each account. You can:
- close the account
- freeze the account
- remove authorized users from the account
- leave the account alone
Ideally, you would close all your joint accounts. If you owe a balance, however, credit-card companies typically won't let you close the account, so you may have to settle for freezing it to prevent future charges. A freeze keeps you from using the card, too, so make sure you have plastic in your own name first.
Once the account has been frozen, the balance can be paid off or, better yet, transferred to the responsible spouse's individual account.
A side note: Closing old accounts and opening new ones can have a negative effect on your credit score, said Craig Watts, spokesman for Fair, Isaac & Co., which creates the leading FICO credit score. That's why it's important to apply only for the credit you need, not half a dozen new cards, and to close only those accounts that are vulnerable to being misused.
But don't put off taking action because of credit score concerns. The dings you get are likely to be slight and far outweighed by the potential damage an ex-spouse can wreak if you don't get this done.
Continued: Contact the creditor
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