Don’t overlook the credit report in your divorce
Don’t make any decisions in your divorce without first reviewing your spouse’s credit report. If the credit report includes a lot of late or missed payments, consider whether your spouse can be relied upon to fulfill future financial responsibilities, like making monthly spousal maintenance payments or property buyout payments.
Understanding what you have, what you owe, and your streams of income is a necessary first step before any decisions should be made about division of property, child support, and spousal maintenance.
As you collect your financial information, one key document not to overlook is the credit report. Be sure to get your credit report, and one for your spouse, and review them carefully.
What is a credit report? A credit report is a written summary of your credit activity. Credit reports often include:
A list of businesses that have given you credit or loans
The total limit you can borrow on each credit card or loans
The current balance of each credit card and loan
Your repayment activity, including payment amounts and missed and late payments
Publicly available information about past and present bankruptcies and liens
A credit report is different from a credit score. A credit score is a number used by credit reporting companies to rate your credit worthiness. A credit report is a detailed report of your credit history.
How do I get a credit report? Federal law allows you to get a free copy of your credit report every 12 months from each credit report company (Equifax, Experian, and TransUnion). Go to www.annualcreditreport.com and follow the prompts to request your free credit report.
How do I get my spouse’s credit report? Getting a credit report is free and easy. If you give your credit report to your spouse, he or she may be more likely to reciprocate. If your spouse refuses, ask an attorney about ways to compel your spouse to provide this information.
When I review the credit reports, what should I look for? Once you have a copy of your credit report and your spouse’s credit report, look for:
Credit cards, loans, and lines of credit where both spouses are borrowers. If you and your spouse are both borrowers on a credit card or loan, consider closing the account or removing one spouse as a borrower. When two people are borrowers on the same credit card, each person is responsible for repaying any debt accrued, even debt accrued by the other person. Protect yourself by minimizing or eliminating financial ties between you and your spouse, especially when it comes to debt. By eliminating all shared credit cards, you limit the risk of being held responsible for your ex-spouse’s future spending.
Credit cards, loans, and lines of credit where one spouse is the borrower and the other spouse is an authorized user. Similar to the point above, consider canceling any credit cards where you are the borrower and your spouse is an authorized user. Or, consider removing your spouse as an authorized user.
Recurring debt. Recurring debt is debt where payments are made over time. Your divorce should include a plan for (1) paying off all debt during the divorce process or (2) assigning responsibility for paying off the debt as part of the divorce settlement. Paying off the debt during the divorce process is often the best option. If one spouse is assigned the responsibility of paying off the debt after the divorce, he or she may not follow through, putting the other spouse at risk. For more about this topic, check out our previous blog article, Dealing with Credit Card Debt during Divorce.
Late payments, missed payments, and/or activity you didn’t know about. Does your spouse’s credit report include missed or late payments, or debt and credit cards you didn’t know about? Divorce settlements often include money paid out over time. If your spouse is financially irresponsible, consider whether he or she can be relied upon to fulfill future financial responsibilities.
Talk to your attorney about options for structuring the settlement to minimize the need for financial payments after the divorce. This could mean structuring the settlement so that:
All property transfers are completed before the divorce is finalized.
Instead of monthly spousal maintenance payments, you receive a larger upfront share of property.
All joint debt is paid off during the divorce process.
All post-divorce financial obligations are secured by other assets.
The settlement includes stiff enforceable penalties if payments are missed.
Contact Serene Divorce Planning at (425) 903-8188 to learn more about how you can structure your settlement to minimize future risk from a financially irresponsible spouse.
This information is educational in nature and should not be relied upon for legal or tax advice. Serene Divorce Planning LLC is not an attorney and does not provide legal or tax advice. Individuals seeking legal or tax advice should solicit the counsel of competent legal or tax professionals knowledgeable about the divorce laws in their own geographical areas. Serene Divorce Planning LLC does not sell or consult on securities.