Protecting Your Credit During and After Divorce

Posted by Nicholas Hursh

After the divorce process is commenced, clients often run into difficulty meeting his or her financial obligations. It is important to create an individual budget and consider financial planning in order to protect your credit both during and after the divorce. Incorporating an economic perspective from the onset of your divorce can make a big difference in the financial position you are in at the end of your divorce.

In many divorces, managing the parties’ debt and financial obligations between spouses is a contentious issue. Imagine receiving a collection notice from ABC Lending directed to your attention a year after your divorce. You read through the letter and realize the debt and amount owed was from a lawnmower purchase by you and your former spouse five years earlier. The problem is that your ex-spouse has had the sole benefit of the zero-turn lawnmower for over a year and was supposed to be paying on the joint debt owed to ABC Lending. What, if anything, could you have done to prevent this situation?

A common misconception is that one spouse taking over a debt or financial obligation completely relieves the other spouse of any financial liability. Unfortunately if said debt or financial obligation was jointly incurred between both spouses, the bank, lender, or creditor pursuing collection will not be concerned with the divorce decree or prior agreement of the parties. The result if the obligation is not timely paid is that one spouse’s credit will be negatively affected without any of his or her own wrongdoing. There are simple remedies and courses of action that you may take to avoid this harm to your credit that inevitably will preserve your financial future and ability to move on financially following a divorce. For example, specifically requesting "credit harm indemnification" from the Court or within a written agreement, as well as defining that term to include violations as the failure to notify the other spouse that a payment will not be made or that payment is not made in a timely manner, create additional financial protections for you following a divorce. If real estate is involved with a joint debt, you should contemplate sale and refinance options for you and your spouse. You also should consider a lump sum or installment payments from a spouse in order to equalize you versus running the financial risk of having the other spouse take on a debt of financial obligation in your name. Thus, it is important to consult with legal and financial professionals in order to avoid these negative financial consequences both during and after your divorce.

If you would like to discuss this matter further with your own circumstances, please contact me at (260) 423-1430 or