Going through a divorce can be overwhelming – equitable distribution, visitation, alimony, child support, division of retirement accounts, where to live, re-entering the workforce. All of these are important, long-lasting decisions. But there is one thing that many people fail to consider during a divorce………..divorcing your credit reports.
Today, your credit report can have a significant impact on all aspects of your life – obtaining a credit card, getting qualified for a mortgage, car loans, a job, the interest rates you pay, car insurance, life insurance. Not having good credit can cost you thousands of dollars. That is why it is important to address your credit report, and the lines of credit that your spouse can access as early in the divorce process as possible.
The key to divorcing credit reports is understanding the difference in the way a court views debt versus the way credit companies view debt. A court views debts as either marital debt or non-marital debt, and will divide it according to a variety of NJ statutory factors, which can be found here. Credit companies view debt as either being joint or individual. With joint debt, both spouses signed for the credit and both spouses are responsible for the debt. With individual debt, only one spouse signed for the debt, hence only one spouse is responsible for it.
As an example, if during the divorce a judge orders one spouse to make the payments on a joint credit card, and that spouse fails to do so, in the eyes of the creditor (and reflected on your credit report), both spouses failed to make the payment. Now, you may file a motion asking the judge to order your spouse to pay the credit card and award counsel fees, but even if you win, your credit report will still be negatively impacted. This is why it is so important to take precautionary measures.
First, know where your credit stands. Check your credit report and identify which accounts are joint accounts and which are individual. Since information on the three national credit reports can differ, it is a good idea to check your Experian, Equifax, and TransUnion reports.
Second, consider closing joint accounts or accounts for which either spouse is an authorized user. By closing the account, even if you continue paying down the balance, you ensure that neither spouse can add charges to the account. Be certain that doing this is not a violation of an existing support agreement or Order from the court. It is important to note that creditors cannot, on their own. close joint accounts because of a change in marital status, but can do so if asked.
Third, make sure that all payments on individual accounts and joint accounts are made on time. Protecting your credit during the divorce will make moving on after it financially much easier. If you are interested in learning more about your credit rating, click here.
Sandra Fava is a contributor to the New Jersey Family Legal Blog and a member of Fox Rothschild’s Family Law Practice Group. Sandra practices throughout New Jersey in all areas of family law and family law litigation. You can reach Sandra at (973) 994-7564, or firstname.lastname@example.org.