Divorce and Credit
Wipe Out DebtIn 1938 a federal law was passed known as the Wage Earner Plan. It is administered by the same branch of our courts that ..... 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.
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.
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 ......
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