Your wedding day; what a wonderful day that was. You’re dressed in your tux or wedding dress, nervously standing in front of the priest, vowing to respect and honor each other until death do you part. It’s all sounds like a great plan. The problem is that the “plan” doesn’t always work out.
According to the CDC the marriage rate is 6.8 per 1,000 or 6.8%. The divorce rate is 3.4 per 1,000 or 3.4%. And while this is not a 50% divorce rate, it does mean that there are about 50% as many divorces as there are marriages in any given year. The result is millions of joint credit cards, auto loans, mortgages and other loans that are now going to be assigned to one of the divorcing spouses for payment as part of the divorce decree.
Here’s where the problems begin. The divorce decree only assigns payment responsibility. It does not assign (or re-assign) liability for payment or non-payment. That means that even though the judge told one of you to make the payments on the loans, the bank still considers both of you to be on the hook if it’s a joint liability.
From a credit reporting perspective your divorce never occurred. The divorce isn’t on your credit reports and any accounts that were there before the divorce are still there after the divorce. And if you haven’t figured it out already, any missed payments, defaults, collections or judgments stemming from the joint accounts will also show up on the credit reports belonging to both ex-spouses. You can end up with significantly damaged credit scores simply because your ex-spouse missed the payments on an account that the judge told him or her to pay.
At this point you might not care but there’s a perfectly reasonable explanation of why the judge’s decree doesn’t somehow remove you from responsibility. Your lenders are not a party to your agreement to assign the credit cards to him and the auto loans to her. As such, they’re not bound by your personal agreement to split the debts.
The best way to avoid the credit damages in a divorce environment is to divide the debts on your own before the divorce is finalized. This will also require that you close joint credit cards, something I never advise in any other situation. This could leave you without credit cards unless you opened a few on your own prior to the divorce.
Co-mingling credit obligations is very easy. Separating them is next to impossible. This is why I suggest that you, at the very least, think about maintain credit independence before and during marriage. You simply don’t know if marriage is going to last BUT you do know that you obligations to repay your debts will last.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, and the credit contributor for Mint.com. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.