2. Keeping joint credit cards and loans
Once you decide to go your separate ways, it is also time to separate your finances too. Consider closing joint accounts or accounts in which your soon to be former spouse is an authorized user. If possible, ask the creditor to convert these joint accounts to individual accounts – but keep in mind that a creditor does not have to change joint accounts to individual accounts.* You may be asked to reapply for credit on an individual basis and then you may be extended or denied credit.
If possible, get a new credit card in your name alone. This will allow you to work towards a credit score of your own, and it can help you to divide joint debt. By either paying off the joint cards together, or dividing up the debt on joint cards and transferring it to individual cards, you can protect yourself from being liable for your partner’s debts. Because, when it comes to joint credit cards – each of you will be 100% financially responsible for that debt – even if it was the other person who spent that money. If the credit card debt is related to supporting the family, no matter who handled household’s finances, you and your ex will both be responsible for that debt.
The reason for closing a joint account is not to cut off your spouse or partner, but rather to prevent him or her from incurring any additional marital debt for which you may be later responsible. You don’t want your cash-strapped or bitter soon to be ex-spouse to start charging those still open joint credit cards.
Preferably, you and your spouse or partner should address the issue of debt in your property settlement agreement, as sooner than later your joint debt is bound to cause some problems. Bear in mind that even if a property settlement agreement assigns separate debt obligations to each spouse, you may still be hurt by your ex-partner’s credit history on jointly held accounts. Should your ex file for bankruptcy or just decide not to pay what he or she is supposed to pay, your creditors can go after you for the full amount of the debt, plus interest and penalties. You can include provisions in the divorce agreement to force your ex to pay up, but going back to court will take time and it will cost you.
Take into account that even if your divorce starts out on friendly terms, things can go sour pretty quickly once the cash gets tight, so protect yourself from unplanned “joint debt” and take care of those joint accounts.
* In the case of a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.