As if it weren't hard enough to deal with the emotional toll of a marriage falling apart, divorcing couples often encounter an exhausting chore — agreeing on how to separate joint assets and debts.
When it comes to settling joint credit obligations, things can get particularly dicey. As you navigate your divorce, watch out for these four common mistakes divorcing couples make:
1. Assuming the divorce agreement settles everything
Many consider the divorce agreement to be their cue they can move on. But when it comes to credit card accounts, that's not necessarily the case, says Joe Ridout, consumer services manager at Consumer Action, a consumer advocate group. As long as your name remains on a joint credit card after the divorce (or as long as your ex remains an authorized user on one of your cards), the bank can hold you responsible for future charges your ex makes.
“You may draw up a divorce agreement, but no matter what that agreement says, you still have a contract with the bank that issued the credit cards on which you are a joint cardholder,” says Ridout. “It is your responsibility to contact banks and make sure your name is taken off the account.”
Because your credit cards may have been taken out years ago, you may not even realize which ones you're sharing with your spouse. But overlooking jointly held cards, or cards where your ex is an authorized user, could lead to some nasty surprises in the future.
“It's not unheard of for a vindictive spouse to run up debt just to hurt the former partner,” Ridout says.
What to do: Pull your credit reports at AnnualCreditReport.com. Go through each credit card account, making note of all cards that link you to your ex, either via a joint account or an authorized user arrangement.
Contact lenders directly before finalizing the divorce to learn exactly what they need from you to remove you from jointly held accounts. If your and your soon-to-be-ex's combined credit histories helped you qualify for the card, the bank may not be willing to remove just one party, and the only solution will be to close the card. Keep copies of all correspondence with the lender.
2. Trusting an ex to assume a debt
Your ex may agree to take on the debt on one of your joint credit cards in exchange for some other concession or compensation in the divorce agreement. However, if he or she stops payments on the account, you're stuck. The bank will still see the credit card debt as your responsibility.
What to do: The only surefire way of having your ex take full responsibility for the credit card debt, says Ridout, is to have him or her open a new card and transfer the existing debt to that. Leaving the debt on a card with your name on it would be a big mistake.
3. Leaving your name on a mortgage
Jointly held mortgages can be tricky to deal with in a divorce. Even if your ex gets the house and agrees to assume the mortgage doesn't mean you're off the hook. From a legal standpoint, if your name is on the mortgage, you are equally responsible for the debt — even if you no longer have any legal ownership of the house.
What to do: Simply agreeing in the divorce settlement that your ex will refinance and take out a new mortgage in his or her name is not enough. If your ex doesn't get approved for a new mortgage loan, you're still on the hook for the old one. Discuss this point carefully with your attorney, and don't finalize the divorce until refinancing has been secured.
4. Not double-checking your credit reports
Mistakes or small overlooked details can come back to haunt you long after the divorce settlement. Accounts you thought had been taken care of may not have been closed after all. A vengeful spouse with access to your Social Security number could open a new joint credit card account during the divorce proceedings, and you might not know until it's too late.
What to do: To protect yourself, be sure that the actions required for each of your joint credit accounts are specified in the divorce agreement. Then go back two to three months after the divorce and double-check that your credit report reflects the agreed upon changes. Pull your credit reports from all three bureaus once a year (or more often if you have reason to not trust your ex-spouse) to make sure no unauthorized accounts have been opened in your name.