Divorce Decrees - Protecting Your Credit, Joint Accounts, Financial Obligations
Myths About Divorce Decrees
Last Updated: March 19, 2015
A divorce decree is the court's final ruling and judgment order that makes the termination of a marriage official. Each divorce decree will be different, but in general the purpose of the decree is to summarize the rights and duties of each party in connection with the divorce.
Divorce decrees are important, because the divorce process is not complete until one is issued by the court. Here is what a divorce decree will usually contain:
- Division of property between the parties.
- Spousal support or alimony.
- Child custody, support, and visitation.
- Various financial obligations of each party.
That last item is what we are focusing on in this article.
Financial Obligations and Your Divorce Decree
It is important to understand that the divorce decree by itself does not change your financial obligations to your creditors. Whether by settlement or court order, one spouse may be ordered to pay off a given debt, say a jointly held credit card. While that decree will be binding on the former spouses, it does not bind the credit card company.
Creditors aren't interested in how property and bills are divided during divorce. If you have debt in joint accounts with your spouse, you are both responsible for paying it back. So even though one spouse is obligated to pay the debt, the creditor can seek collection from either party. What's more, if the party obligated to pay the debt makes late payments or fails to pay at all, both spouses will end up with a negative item on their credit reports and lower credit scores.
Here is a posting from our credit repair forums:
I was divorced 4 years ago, and in the division of our debts, my divorce decree specified that my ex-wife was responsible for the mortgage. She gave up some equity in investments so she could keep the house, which I Quit Claimed over to her.
My new wife and I applied for a mortgage recently. To my surprise, we were turned down because my ex is currently 90 days late on the mortgage, and it's showing up on my report. I contacted the credit bureaus to dispute this, but they won't take it off. What can I do to get this off my report? The debt isn't mine.
The answer to this question:
|Dear Worried Ex:
Unfortunately, you can't do anything. If the mortgage is still in your name, you are still legally responsible, no matter what the divorce decree says.
Divorce Decree Myths
Myth 1#: A divorce decree can relieve a spouse from financial obligations of joint debts.
Fact: Debts that were obtained in the name of both spouses before a divorce (meaning both the husband and wife signed a document or application saying that they were both responsible for the debt) remain the obligation of both parties after a divorce, no matter what a divorce decree says.
Why? Because both of you signed a legally binding contract with the creditor, and the divorce decree does not amend this contract. Amendment of any contract requires agreement by all parties (including the creditor). Proof of the amendment requires the signature of all parties. During a divorce, the creditors are not even consulted, let alone a part of the divorce courts, and therefore the original agreements/contracts stand. Consequently, if your ex-spouse does not pay a debt that he was assigned in a divorce decree, then you are responsible for it.
Myth 2#: A divorce decree protects my credit if my ex-spouse doesn't pay the debts they were assigned in the divorce.
Fact: If you have a joint financial obligation with your ex-spouse, and your divorce decree states that your ex-spouse is responsible, and your ex-spouse is delinquent on paying, your credit as well as his is affected. As stated above, your legal responsibility for a debt does not go away because a divorce decree assigns responsibility for a debt to your ex-spouse. Along with a legal responsibility to pay comes the right of the creditor to report a debt delinquent on your credit report if it is not paid as agreed in the original contract. Period.
Especially tragic are situations where one ex-spouse files bankruptcy and includes many joint debts in the BK. The spouse not filing bankruptcy is left holding the bag for these joint debts, and many times is not notified of the ex-spouse's filing until months or years down the road when it is too late to correct the situation. So not only is the spouse who didn't file BK responsible for the unpaid debts (and can be legally sued for them), but the non-filing BK spouse's credit also is ruined - something that cannot be corrected - because the credit bureaus have the right to report them delinquent.