|
Divorce May End a Marriage, But Unchecked
Credit Issues Just Might Last Forever
One of the most important aspects of planning for a
post-divorce life is planning for your post-divorce credit
history.
While Valentine's Day should be focused on the happy side of
love, it's always important for smart individuals to be aware of
the potential money pitfalls of love gone wrong. A divorced
couple's respective credit histories can still be destroyed if
one or the other practices poor credit habits during or after
the divorce. For example, a failure to remove one's name
from home mortgages, auto loans, credit card balances or home
equity lines once a divorce is final can produce significant
headaches if an ex-spouse loses a job, runs into medical
problems or for any other reasons stops paying on time.
With the current state of the economy, pre- and post-divorce
credit deserves even more focus from soon-to-be-single
individuals. This is why it's so important to link financial
planning with the legal side of divorce planning. There are
financial planners, such as CERTIFIED FINANCIAL PLANNER™
professionals, who specialize in divorce situations, and they
can be found at the Financial Planning Association's website www.PlannerSearch.org.
Here are some key points to consider if you are planning to
divorce or if you are post-divorce and are unsure about how your
ex-spouse is handling credit you once held jointly:
Enlist your own financial planner with your own attorney
or mediator. You may have spent the lion's share of your
life making money decisions with your spouse, but when you
split, it becomes all about protecting your best interests.
While this doesn't have to be an angry process, good planners
with experience in divorce matters should be able to identify
financial issues unique to your situation and guide you as you
handle them. As mentioned, if your spouse is going to keep the
house with the outstanding mortgage, you need to make sure
appropriate actions (more on this below) are taken to make sure
your credit isn't damaged by their inability to pay later.
Demand inspection of each other's credit reports. It's
very easy to lose sight of credit matters when other immediate
issues surface in the breakup of a marriage. If kids and a
divorcing spouse risk physical danger from the other spouse, for
example, credit concerns may be in the picture, but certainly
not as a first priority. However, before a divorce is finalized,
it's particularly important for both sides to review each
other's recent credit history because debt trouble can surface
during a breakup and cause problems later. Good divorce
attorneys and mediators can draw attention to this need, but
couples are ultimately responsible for making this process
happen. It's best for divorcing couples to make time to pull
copies of their credit reports and gather those for the same
period from their estranged spouse and inspect both thoroughly
(with the help of a planner or their attorney if possible).
These respective credit snapshots can be used to make decisions
that will protect their credit in the future.
If both sides haven't already obtained their annual free
credit reports from the three major credit agencies (TransUnion,
Experian and Equifax), the place to go is www.AnnualCreditReport.com.
Keep in mind that most "free" credit report services
you see advertised on TV take your credit card number and find a
way to charge you for your "free" credit information
later — don't fall for it.
Remove your ex-spouse's name from your accounts
immediately. If you are keeping certain credit card, auto or
mortgage loan accounts, both of you should call each lender and
follow their respective processes to remove your ex-spouse's
name from those accounts. You may need to coordinate with your
ex on all written applications to make sure each account ends up
where it needs to.
Consider refinancing the debts you keep once the divorce
is final. Ex-spouses can run into debt trouble and creditors
may come after the other ex-spouse for payment if that debt
still exists with a history of both names as creditors. That's
why if they're able, both spouses should immediately refinance
the debt from mortgages, home equity loans, credit cards or any
other consumer loans that they're splitting up. This might be
easier said than done given current tight lending requirements
and each ex-spouse's profile as solo borrowers, but again, this
is why it's particularly important to collect debt advice before
the divorce is final.
Keep a continued watch on credit reports and scores going
forward. For some couples, it might make sense to sign up
for services that alert you to sudden negatives in your credit
data, but above all, set a staggered schedule immediately to
check your credit reports in the 2-3 years following your
divorce to spot any erratic credit activity that an ex-spouse
might cause. For example, some ex-spouses have been known to
place their ex-spouses names on mortgage or credit applications
they might not otherwise qualify for. A sharp eye on your credit
history can help you identify fraud or other problems.
February 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
|
