What’s on the Table?
It’s important to know what your risks and obligations are. With regard to debts, you should take an inventory of any loans you’re responsible for. Most importantly, get a listing of debt that you actually applied for -- where you signed an application as borrower or co-signer.
You may remember most of the debt you applied for, but divorce is a hectic time. Double check by ordering credit reports. Those will show all loans being reported to credit bureaus, which are also the loans most likely to affect your credit. You can order one credit report annually from each bureau at no charge.
You may be responsible for more than just the loans you’ve applied for -- you may even have to cover debt that your spouse took on during the marriage. Talk to a local attorney as soon as possible to get more details.
Stop the Bleeding
Now that you know where you stand, keep things from getting any worse. It’s best to limit any further risk by closing or freezing accounts that you have jointly with your spouse. If you share a credit card account, you’ll be responsible for any spending on that account. If the marriage is on its last legs, does it still make sense to share the account? Do you trust your spouse to keep spending at a minimum?
Ideally you and your spouse can discuss this so there are no surprises or hard feelings. For example, if mortgage payments automatically come out of your joint checking account, it’s best to figure out another way to make the payments (and update your lender) before closing the account. However, in some cases you’ll have to move quickly and figure out the details later (ask your attorney for advice if you’ve got a spouse who’s spending uncontrollably or a contentious situation).
To close accounts, contact your lender and let them know what’s happening. Tell them you’d like to prevent your spouse from using the account, and ask what the options are.
Build Your Own Credit
As you close accounts (or, better yet, before then) you should be sure to have credit accounts in your own name. You may want to have your own credit card or auto loan -- especially if you don’t currently have any debt in your own name.
It’s not uncommon for one spouse to apply for most loans, while another spouse does very little borrowing. In reality, both spouses repay the debt, but the credit bureaus only see the name on the loan application. If you’ve never (or rarely) applied for a loan, you may not have much of a credit history and lenders may be hesitant to work with you in the future.
Build credit by opening accounts in your name (individually). It may be a good idea to do this sooner than later, since things can get messy during divorce: payments may get missed and you’ll want to have everything in place so you can function on your own as soon as possible.
Take a Picture
It’s also a good idea to keep track of how household debts progress during the divorce. Take a snapshot of your finances when you and your partner decide to separate. Save copies of your most recent account statements -- if anything dramatic happens, such as an extravagant trip that you don’t participate in, you may not be responsible for the debt.
Again, a local attorney is invaluable when you decide to divorce. Ask for their advice on how to handle your debts before, during, and after divorce.
