Protecting Your Credit After Divorce

One of the primary functions of the divorce process is the division of marital assets and debts. In Hawaii, with few exceptions, all assets and debts acquired during the marriage are considered "marital" - regardless of whether acquired or held by one party or the other - and are thus usually divided equally between the parties during a divorce. During the divorce, the judge will often assign some of the debts to the husband and some to the wife, even though the debts may have been acquired in the other's name.

Here's a typical example: During the marriage, the parties purchased a vehicle by obtaining a loan in the husband's sole name. However, in the divorce, the Court awards the vehicle to the wife along with the liability for the unpaid balance of the loan. Because the Court can't order the lender to remove the husband's name from the loan, the loan remains in the husband's name, even though the Court awarded the car to the wife and assigned her the responsibility to pay off the loan. (Can you see where this is going?) After the divorce, if the wife fails to make a payment on the loan, it is the husband's credit, not the wife's, that will suffer because the loan is still in his name.

Another example is where, during the marriage, the wife used a credit card in her name to purchase household or other items. In the divorce, the Court ordered the husband to pay the credit card balance. If the husband fails to pay the balance, the negative entry will appear on the wife's, not the husband's, credit report.

Again, the Court cannot order the creditor/lender to remove the debtor spouse from the debt or reassign the debt to the other spouse. In obtaining the loan or credit card, the acquiring spouse entered into a legally binding contract with the creditor to pay the debt. The Court cannot modify this contract and order the creditor to let the spouse out of the contract. The best the Court can do is order the other spouse to pay the debt. However, as far as the creditor/lender is concerned, it is the contracting spouse who is liable to pay the debt.

The best way to protect your credit is to maintain control of the payments in the divorce proceeding. Thus, if your spouse is going to pay a debt that is in your name, have the Court order your spouse to make the monthly payments to you, not the creditor. That way, you'll know each month whether your spouse will timely make each payment. If your spouse fails to make the payment to you, you should consider making the payment yourself - even though the Court ordered your spouse to make the payment - in order to protect your credit. If your spouse refuses to reimburse you, you can then file a motion with the Court asking the Court to sanction your spouse for his/her refusal to make the payment. Sanctions can include fines, offsets against payments you owe your spouse, and/or attorney's fees and costs for having to file the motion.

Another proactive method of protecting your credit is monitoring your spouse's payment (or non-payment) online or by contacting the creditor. Be sure to check before the payment is due so that you can make the payment if necessary before the payment is considered late. As discussed above, you can then file a motion with the Court seeking appropriate sanctions.

Further, be sure to close or separate all joint accounts. Do not assume that your spouse will do so just because the Court ordered him/her to do it. Follow up with the creditor to be sure you are no longer responsible for the account.

You can also monitor your credit report at www.annualcreditreport.com. This website is operated as a collaboration between the three credit reporting agencies and the Federal Trade Commission. Federal law permits you to obtain one free copy of your credit report each year from each of the credit bureaus. Alternatively, you can purchase a credit report directly from the credit bureaus by going to their websites: www.experian.com; www.TransUnion.com; and www.Equifax.com. Of course, monitoring your credit report is not a proactive method of protecting your credit - it merely informs you of negative entries that the credit bureaus have added to your credit history.

Being proactive during the divorce process and after the divorce is the key and should help prevent negative entries from being incorporated into your credit history.