How to Handle Jointly Held Debt During a Divorce
Written by: Kristy Welsh
Last Updated: July 13, 2017
Unless you were still in the dating stage, chances are you and your ex share in some debt. While it's no easy feat discussing financial matters before, during, or even after a break-up, it simply must be done — for the sake of your sanity, your bank account, and your credit score. It may help to have a third-party's advice in this trying time, in which case you may want to refer to this checklist, of sorts.
Transfer Lease Agreements
One of the first steps in taking care of outstanding debts and obligations is to transfer lease agreements, utilities, and the like into one responsible party's name. If one of you will continue to live in your previously shared home, take the other party's name off of the lease agreement and transfer the utilities accordingly.
Revoke Authorized User On Credit Card Accounts
If you added your spouse or partner as an authorized user on your credit card, or checking account for that matter, contact the bank and have the authorization revoked immediately.
Close Joint Credit Card Accounts
Provided they are at a zero balance, close joint credit card accounts. Should you have a balance due, both parties should share in paying it down to zero so that the account can be closed.
Freeze Joint Credit Card Accounts if You Cannot Close
If the balance due is greater than both parties can afford to pay, at the very least, freeze the account so that nothing more can be charged.
Agree to a Payment Plan for Joint Accounts With a Balance Due
While you may agree to make payments on one credit card, and your ex agrees to make payments on another, you are still at the mercy of someone else. That's never a good feeling, particularly when it's an ex. One solution may be for both of you to make equal monthly payments on each joint account. This amount should be at least the minimum amount due, for each of you, so that if your ex ever misses or is late with their monthly payment, yours will prevent any late payment fee and, worse, hit to your credit score.
Keep Tabs on Payments Your Ex is Responsible For on Unresolved Joint Accounts
Whatever payment arrangements you make on joint accounts that cannot be closed, agree that each of you can (and should) check in on your jointly-held accounts on a monthly basis to be sure the other is upholding their part of the deal. Ideally, this is something that can be checked via an online account, or you can simply call the creditor directly and check payment history. While this may sound like the last thing you need on top of all your other responsibilities, protecting your credit is well-worth this extra effort.
Sell House and/or Car or Refinance Into One Party's Name
If you own a home together, or a car, the simplest solution is selling it. But if one of you is intent on keeping it, said party should refinance in their name. Of course, this is often easier said than done depending on the borrower's credit score. The borrower should take a look at their credit report and see how they may be able to raise their score. It may be the credit utilization ratio bringing the score down, in which case credit accounts should be brought to zero (or as low as possible). Or it may be old debt that's to blame, in which case the debt validation process can be invaluable, as it's likely this debt has been sold to collection companies that do not have the necessary documents to prove liability.
Help Pay Your Ex's Share of the Debt, if Needed
It may not be equal, and it may not be fair, but sometimes it pays to take on your ex's share of the debt if they're struggling, irresponsible or, worse, vindictive. You very well could end up paying more in the long run for a credit score that takes a tumble due to late payments, missed payments, defaults, charge-offs, a repossession, or a foreclosure. Certainly seek legal advice if it comes to this, but be prepared to bite the bullet and protect your credit at (almost) any cost.
Going through a divorce is never easy and it can be difficult to face some tough decisions head on. But, if you don't take care of some of the little things during a divorce, like closing credit card accounts, they can turn into much larger problems down the road. The best advise is to be pro-active and try to work together to end the marriage, and your joint debt, in a civilized manner — all will win in the end.