When it is time to talk about a divorce, couples often value discussions on assets and how to best separate them, but it is common for couples to neglect discussions on shared debts.
The process of fairly allocating shared debt during a divorce involves the courts. A divorce decree is held to judge personal debt ownership.
The nature of a contractual agreement around debt involves the creditor and the individuals responsible for the debt.
A divorce will legally separate you from your spouse in a marriage contract,
will not separate you and your loved one from the contract with the creditor.
Legal responsibility for payment on the debt may have been shifted to only your spouse during the decree, but your name will remain in the contract until a decision in made by the creditor to take it out.
Separation of Shared Accounts
There are varying rules on the division of joint accounts depending on which state you reside in,
but the acquisition of debts throughout a marriage is generally considered as shared property.
It is often an uncomfortable topic, but it’s essential to prioritize the division of debt.
Remember to keep in touch with financial institutions while requesting for the immediate shut down or separation of existing shared accounts.
The fundamental reason behind restructuring your financial accounts is to prevent a negative remark on your credit report.
Without the restructuring, your previous spouse may inflate the balance of your credit card or fail to meet mortgage payments, which will appear on your credit report as well.
Here is one step You should take Right Now:
The appropriate step to take after joint credit card closures is to request for a reissued card with your initials only from every financial institutions you’re currently subscribed to.
The option to refinance auto and home installment loans is also available to you.
The decision making process should only revolve around both of you, involving a third party may cloud your ability to plan for your financial future.
An agreement between you and your spouse on the division of debts and account responsibilities is possible, only requiring corrections to remove the spouse no longer responsible for the joint account.
Judges will spend a small portion of their time deciding on an outcome that will affect your financial record for a long time.
How About Unsettled Payments
What often tips credit scores one way or the other after a divorce is unsettled payments.
A failure to pay on a joint account will equally impact both parties as a delinquency,
even the party who has already settled their payments and is no longer responsible.
If your credit is unfairly messed up by unsettled payments from your ex, you may visit credit bureaus and argue the delinquent mark.
Failed payments can be escalated to the courts, who have the authority to hold your ex-spouse in contempt.
How To Get Rid Of My Ex From My Credit Report
Updating your accounts is a process, always recheck your status to assure changes.
Understand that your credit status needs to be checked, monitor your credit report monthly online.
There are sites offering this service for free, view how updates are evolving as time moves on from your separation.
Improving your credit score is as simple as paying all loans on time, maintaining low debt levels and reducing future credit inquiries.
Here is a detailed step by step process on improving your credit report.
1. Acquire a copy of your report from the three credit reporting agencies. There are websites offering this free service. An example of such a website is annualcreditreport.com.
2. Keep in touch with all creditors on that report that lists accounts you don’t use.
If you are an authorized customer on your ex-spouse’s credit cards request the creditor to take out your name and to no longer report your name to the credit bureaus. Notify them of your divorce.
3. If you locate any accounts for which you no longer have a responsibility, contact the credit reporting bureaus and inform them of the account, indicating the account does not belong to you and thus should be removed from the report.
Upon receiving a free credit report copy, instructions on how to correct the listings will be provided by the credit reporting agencies.
4. After the credit reporting agencies finish corrections to your report they should send you a corrected copy. Recheck the copy for accounts that should not be there and resend new corrections if necessary.
5. Upon clearing your reports, recheck your credit score. It may take a few months to restore your score, but once you have a score above 700 call any creditors responsible for the low score and ask them to reconsider.
6. Change your address. If you are moving, be certain all your creditors and other businesses are informed of your new address. You can also have your mail redirected from your old address to the new one.
7. Request for new account numbers. Your ex-spouse may have other documents or mail with your account number.
Your ex may use that information to increase charges in your name, so ask your creditors to issue a new account number.
8. Place a fraud alert on your credit report. Spiteful exes might try to open new accounts in your name. A fraud alert lets businesses know they should take extra precautions to confirm your identity before issuing new credit.
Understand that the basic fraud alert will expire after 90 days.
9. Temporarily freeze your credit report. A step beyond fraud alerts is a security freeze.
Upon freezing your credit report, businesses can no longer access your report to potentially approve any credit-based application.
A credit report freeze would eliminate potential fraudulent accounts from being opened in your name.
Certain transactions however, like payday loans, do not require a credit check.
10. Contact your creditor to talk about the two options available for removing your spouse’s name; refinance and assumption.
A refinance allows you to apply for a new first mortgage in your own name and eventually pay off the existing mortgages.
An assumption, often referred to as novation, transfers the loan from you and your spouse jointly to just you.
Not all loans are assumable and there is no guarantee the lender will allow it. Refinance your home or assume your current loan, depending on your individual circumstance.
11. Remove any authorized person. Your ex may charge up debt on a joint card or one in which you are the primary account holder and they are an authorized user, which will have a big impact on your credit score.
You are also responsible for the bill. If your ex is an authorized user on one or more of your credit card accounts, contact your card issuer right away to remove them.
If you hold joint cards, pay them off and close them to stop foul play.
12. Make sure you continue to receive statements and have online access for all joint accounts your ex is supposed to pay off. By doing this, you can be notified if a payment is late and respond before it shows up on your credit report.
What if an account was in my husband’s or wife’s name only?
Divorced women and men often don’t have separated credit histories because their husband’s assumed sole responsibility of the credit account under their name.
As a response, the Equal Credit Opportunity Act requires creditors to consider the history of accounts jointly held by women and their husbands.
If women or men can prove that their joint accounts equally reflects their own credit score, creditors cannot ignore the record. In order to prove this, clearly explain that accounts were properly handled during the marriage and that bills were always settled by a joint checking account.
There are times when your ex-spouse was an unreliable credit risk, in which case you can also prove that an account does not reflect your own credit score.
Do I have a right to get a credit report on my spouse or ex-spouse?
The quick answer is no. The Fair Credit reporting Act only allows individuals to get credit reports on themselves. This excludes you, and/or your attorney from getting a credit report on your spouse.
Issues involving an ex-spouse paying late on accounts
If an agreement exists for an ex-spouse to pay a bill but that bill is paid late, there will be an impact on your credit score.
Until the account is paid off, ownership will remain yours.
A creditor could agree to remove the late payment from the innocent spouse’s report potentially requiring that it be paid off first.
Understand that the lender may choose to go after you and report the delinquency on your credit reports for the debt.
Preventing credit damage from your Ex
For stronger credit protection, do not wait for your ex-spouse to make payments according to a divorce decree in the event you have the funds to pay on the joint accounts.
Go after your ex for the money she or he owes you after paying the bills. There is no need to risk your own credit scores if it’s not needed.
At least make sure to pay the minimum on joint credit card bills during the process of freezing/closing joint accounts.
A single late payment can negatively impact your FICO score.
The hardest issue to resolve is mortgages because it requires refinancing to get rid of names from the home loan.
Home mortgage problems after the divorce:
Why is it that you remained legally obligated to make mortgage payments even after ownership has been transferred from you to just your former spouse?
This problem has been exceedingly common because divorce lawyers have a fundamental misunderstanding of real estate and mortgage law.
The reason behind this obligation involves the two legal documented signed by both parties while buying the home: a deed of trust and a promissory note.
The promissory note, an IOU, states that both parties agreed to mortgage payments on time every month or both parties will be in default.
The note uses the terms “Jointly and severally” which means both parties are equally responsible for addressing the terms and conditions.
A deed of trust, often referred to as a mortgage, is recorded as a land record at the location of your property. The mortgage acts as a form of security for the lender to be confident in extending you the loan.
A trustee was selected by the lender, who was deeded the property. The deed of trust will only be released to you upon full payment of the mortgage. The lender possesses the right to inform the trustee of your potential default, in which case your property will be foreclosed.
Even though you are legally separated from your ex-spouse, your name will still be there and the original deed of trust stays.
An important part to consider is that your ex-spouse needs to be required by your divorce lawyer to refinance the current mortgage.
Your separation agreement should have included appropriate enforcement mechanisms, stating that the property be sold in the event it couldn’t be refinanced.
In the event your ex-spouse refinances the property that would absolutely clear you from any future obligations under the previous promissory note.
But you already received a loan for the home you currently live in, even though you’re still legally associated to the old mortgage? Your situation is not unique, therefor lenders will show an affinity towards being flexible.
Here is what You Can Do:
The bank will not count the past debt alongside the applicant given a judicial decree exists indicating that applicant is not responsible for the previous mortgage, and that the ex-spouse has been paying for the previous mortgage for 12 months.
Banks must be given the actual copy of the divorce decree and either receive 12 months of cancelled checks or a message from the mortgage company servicing the previous mortgage.
Mortgage companies have no information on who sends the checks, making it hard for them to get information like previous checks. Automatic and electronic payments has made it almost impossible to find out.
Given that the divorce failed to obligate the ex-spouse to refinance the property, what is the next step?
The first step involves knowing whether the mortgage is being paid on time, which you have a right to know because you are still on the mortgage.
If your ex-spouse is no longer paying, you need to immediately contact all three major credit bureaus.
Tell them you are not the home owner anymore, and explain that your ex-spouse is obligated to make the payments and that their tardiness should not impact your credit.
The second step involves seeking a lender that understands your situation. If the lender is willing to work with you, he can help you refinance your present home or even buy a different one.
If you are unable to show the divorce decree with the documentation proving that the loan is no longer your responsibility, there is a more complicated solution.
The banks are forced to consider the previous mortgage when computing the debt-to-income ratios, which can make a considerable difference with regards to qualification.
Lenders will then review each application on a case-by-case basis.