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Divorce and Debt: What You Need to Know to Protect Your Finances

Long after a couple have ended their marriage, debts they incurred together can affect their separate finances. If you’re currently grappling with the difficult combination of divorce and debt, your goal is to resolve your shared debts in a way that doesn’t compromise your future. The portion of debt from your marriage that you’re required to pay back is determined by the court and may depend on your state’s laws. However, there are things you can do to avoid paying more than necessary and to prevent the divorce from hurting your credit score.

Continue Making Payments Until You Reach an Agreement

Deciding which party to a divorce is responsible for which shared debts can take a long time, but that doesn’t mean you should let payments slide until you come to a legal agreement. According to Experian, a missed payment on an account in your name will stay on your credit report for seven years, which makes it harder to obtain credit in your own name. If you’re in the middle of divorce proceedings and your ex isn’t paying off a debt that you hold jointly, make minimum payments yourself to safeguard your credit.

Close and Freeze Accounts

An open account with both your name and your ex’s name on it can cost you money, even if it doesn’t have a balance at the time of your divorce. Your ex could at some point charge a purchase to it, making you liable for new debt and damaging your credit if he or she doesn’t pay it. You don’t want to be in a position of paying for debt your ex takes on after you divorce, so it’s crucial to close your joint accounts. This is possible for accounts that don’t have a balance.

For a shared account that does have a balance, the ideal solution is to transfer the balance to a new account held solely by the person who is assigned that debt by the divorce decree and to close the now-empty shared account. In case you are unable to transfer a balance, as when you are still waiting for your divorce decree, shared accounts should be frozen so that no new charges can be added to them. If your ex is listed as an authorized user on any of your credit cards, have his or her name removed from those accounts, as well.

Monitor Accounts With Your Name on Them

Watching joint accounts closely is prudent when you’re handling divorce and debt. Suppose the court ordered your ex to pay a shared debt, but for some reason the balance was not transferred to an account in his or her name only. In that case, you need to monitor the account to make sure your ex doesn’t fall behind on payments and harm your credit. Your creditors will expect you to pay this debt regardless of the court’s decision. If your ex is going to be late with a payment, you may wish to step in and make a minimum payment yourself so your credit doesn’t suffer. And if your ex fails to pay shared debts that the court ordered him or her to and that are still in your name, you may need to speak to an attorney about taking him to court.

Taking these steps to address shared accounts may seem like a chore, but improved financial security is worth the time. Protect yourself now so your divorce doesn’t cause unnecessary harm to your finances or credit later.

Image source: Flickr

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