As part of the divorce proceedings, your attorney will at some point be trying to determine what credit card debts are in each of your individual names as well as shared accounts and authorized user accounts. Often times, understandably, clients are not sure. The distinction in the type of account is important, as it not only affects future liability on the account but also future reporting to the bureaus.

The liability for an individual account lies with the person whose name is on the account (presumably the person who opened it). A shared or co-debtor account allows the credit card company to go after either or both parties on the account. An authorized user situation creates a more complicated scenario. The credit card company cannot attempt to collect payments from a mere authorized user. Their recourse for collection is against the individual whose name is on the account so long as the authorized user did not sign the application or give their social security number to the credit card company. But it is important to know that the credit card companies will still report the payment history on both the individual owner and the authorized user to the credit bureaus. So, if you are going through a divorce, and you are an authorized user on your spouse’s account, be sure to contact the credit card company and have yourself removed as an authorized user. If you are the owner of the account and your spouse or former spouse is an authorized user on the account, call the credit card company and remove him or her as an authorized user on the account. Taking this action timely should help you to obtain the most accurate information being reported to the three credit bureaus.

The three major credit bureaus are Trans Union, Experian and Equifax. The reports of each of these bureaus differ in content. It may not be a bad idea if you are going through a divorce to pull all three. Under federal law, everyone is entitled to one free report from each bureau every year. So a savvy consumer can get a free report every four months on a rotating basis from each of the three bureaus! But be careful. There are a lot of sources that actually charge for these reports despite their name! So to get the free ones, be sure to go to www.annualcreditreport.com.

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Lessen impact of divorce on credit

If you’re planning to file for divorce this year or are already splitting your assets with your soon-to-be ex-spouse, your credit is likely to take a hit.

Many people don’t realize that lenders do not honor court decrees that assign payment responsibilities for joint loans. The mistaken assumption that you’re off the hook for financial obligations can result in a series of missed payments that may trash your credit score for years.

This needn’t happen if you safeguard your credit before you file for divorce. Consider these tips from John Ulzheimer, author of “You’re Nothing but a Number” and an expert at Credit.com, a consumer personal finance site.

If you have joint accounts with your spouse, do your best to turn them into individual accounts so that it will be easier for the divorce court to split up your financial responsibilities. To do that you will need your spouse’s permission, which means you’re going to have to let the cat out of the bag. But taking these steps now can save you years of credit woes later.

Begin by converting your credit card accounts. People most often miss payments on this type of debt, rather than the loans that keep a roof over their head and wheels under their feet.

Next, work on refinancing your mortgage and your car loan. Granted, this is going to be more difficult, because the bank will want just one person to accept the loan in his or her name — which may not be possible if that person’s salary isn’t enough to qualify for the loan. In cases like these, it might be easier to sell the car or the house, split the money and move on. That way, you’re guaranteed not to have credit damages caused by a vengeful ex-spouse.

“Remember that when you’re getting divorced from your spouse, you’re also divorcing yourself from emotional attachment to assets,” Ulzheimer said.

You would also be wise to opt out of receiving pre-screened offers for credit or insurance. A spiteful ex-wife or ex-husband may be tempted to apply for a loan in your name just to ruin your credit. Go to the consumer credit reporting industry’s official Web site for details: www.optoutprescreen.com/

Finally, start planning for all this at least six months to a year before you file, or as early as possible before the divorce gets ugly. Once any problems begin, you and your embittered other half will have a hard time thinking logically. If this seems like a lot of work at the front end of your separation, remember that it will save you up to 10 years of credit-related headaches in the aftermath.

From Marshall Loeb in BND.com.
Posted on January 25, 2008.

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