Divorce & Credit
Thinking about divorce? Then it's time to get your financial house in order. It's easy to protect yourself and your credit if you know how. Your first step? Open chequing and savings accounts in your own name-and don't tell your spouse. Frequently, when couples are contemplating divorce, one spouse will write bad cheques or somehow abuse the joint bank account, leading to credit problems for the innocent spouse. By opening your own accounts-and keeping them quiet-you can help avoid credit problems in the future.
Open your individual accounts quickly, and fund them with as much money as you can stash away. To avoid major change, pay close attention to your credit rating, and make sure you don't get in over your head in credit card and other unsecured debts.
Frequently, one spouse is responsible for maintaining a couple's bank accounts and paying bills, while the other spouse may be in the dark. Make yourself aware of what's going on as soon as you can. It's no surprise that the spouse that knows the least about joint assets is at the greatest risk financially.
To avoid being taken advantage of, try to collect as much information as you can before divorce is even discussed. Make copies of bank account records, credit card statements and tax returns. In particular, make sure you have balances, transaction statements, contact names, addresses and phone numbers for the following:
- Joint bank accounts
- Credit cards
- Brokerage statements
- Tax returns
- Business interests
- Pension funds
- RRSP’s
- Loans
- Medical coverage
- Insurance (home, auto, life)
- Wills and trusts
- Marital assets (artwork, antiques)
- Mortgage
- Indebtedness
- Inheritances
- Safe deposit boxes
To protect yourself, store copies of relevant documents in a safe place-a secret safe deposit box, at a friend's house, or at your lawyer's office. For additional privacy, consider opening a post office box or having personal mail directed to a friend's address.
What You Should Know If You Are Going Through a Divorce
If you are considering a divorce, going through a divorce, or are newly divorced or legally separated, you must pay careful attention to your credit. Why?
Let's say that pursuant to your divorce decree, your spouse is required to pay off two jointly held credit cards. A few months later, he or she neglects to make payments as required, and your creditors contact you demanding payment. You advise them that according to your divorce decree, your ex is responsible for the debt. Not so, your creditors reply. Since they were not parties to the decree, you are still legally responsible for paying off the joint accounts. Although you can proceed against your ex for violating the decree, your creditors still have the right to report any and all the late payments to the credit bureau. Those negative marks are now part of your credit history.
If you have joint credit accounts while you are separated or in the middle of divorce proceedings, ensure that regular payments are being made. That way, your credit record won't suffer. It's important to remember that as long as there is an outstanding balance on any joint account, both you and your spouse are liable for it.
You should also ask creditors to close any joint accounts or accounts on which your ex was an authorized user. As an alternative, you can request that the creditor convert the joint account to an individual one and have the debt transferred to the spouse who is responsible for paying it.
By law, creditors cannot automatically close a joint account due to a change in marital status, but they can do so at the request of either spouse. Creditors don't have to agree, however, to convert joint accounts to individual ones. Instead, a creditor can require you to reapply for credit on an individual basis and then decide-based on your new application-to either extend or deny you credit. Similarly, when a divorcing couple has a mortgage or home equity loan, the lender will probably require you to refinance the loan to remove one spouse from the obligation.
