Originally published by 1p21.admin.
Most people going through a divorce in Texas know that the laws our of
state regarding
community property will play a role in their case. If you can count yourself among those
that possess this knowledge, you should also be aware that it is not only
property that will be divided in your divorce but also debt. While
debt may not be as exciting it can pose as many problems as those surrounding
property division- if not more so.
Today’s blog post from the
Law Office of Bryan Fagan will discuss the subject of credit accounts and divorce. I will introduce
the subject with some introductory information and then we will get into
a hypothetical example that will hopefully illustrate the initial points
that we have made regarding this subject.
An introduction to debt and divorce
The types of debt that you and your spouse have accumulated throughout
the course of your marriage will determine the type of options that you
have for deciding who will pay the debt and how this will be done. For
instance, you should be aware that there are two different types of credit
accounts: joint and individual. Depending on the type of credit account
that you and your spouse selected, different approaches will need to be
taken for each.
The simplest way to determine what type of accounts you each have is to
pull a copy of your credit report. Once you have done so, for each open
account that you have there will be a description of the type of account
that it is.
Individual credit accounts
An individual credit account is one that considers only your personal income
and credit history when it comes to determining whether or not to extend
you credit in the first place, the limits of credit that will be made
available to you and what the interest rate will be that is attached to
that credit account.
A key point to understand is that if you are listed an authorized user
on an individual credit account held by your spouse, that account will
be listed on your credit report but the account holder will be your spouse
and not you.
Finally, debts incurred on individual accounts may both be the responsibility
of you and your spouse in your divorce as Texas is a community property
state. As we just mentioned if their individual credit accounts are showing
up your credit report and vice versa, that ought to tell you that your
actions effect your spouse and vice versa.
Joint Credit Accounts
Credit accounts in both your name and your spouse’s name means that
a credit will be considering your spouse’s income, assets, debts
and credit history before agreeing to loan you money and open up a joint
credit account. Moving forward you and your spouse are responsible for
paying off that jointly held debt. Both of your credit reports will show
activity, positive or negative, associated with this account.
Negotiating how to handle these type of debts in your Divorce Decree is
extremely important. If you negotiate for your spouse to take on the responsibility
of paying off any jointly held credit accounts that have arisen during
the course of your marriage the language stating this must be clear, concise
and understandable. Meaning- your spouse must not be able to argue that
he or she did not understand how to abide by the terms of the divorce
decree on this subject matter.
The reason for this is simple- if he or she does not do what he or she
is ordered to do in your
Final Decree of Divorce, you will need to file an enforcement suit against him or her in order
to bring this to the judge’s attention. Why take this step to go
back to court? Just because the Final Decree states that the debts are
no longer your responsibility does not mean the creditors feel the same
way. In fact, if your agreement to repay a debt states your name on it
then the Decree will have no effect.
Your credit will be harmed and you will suffer the financial consequences
of your ex-spouse not paying down the debt as agreed in the Final Decree
of Divorce. A judge will rely on your Decree’s language to determine
whether or not your ex-spouse can be held accountable for his or her failure
to pay. A Decree with unclear language may not be enforceable. This leaves
you in a position where you may not be able to have the violations of
the order addressed by the judge. Meanwhile your credit score is dropping
and your financial future becomes all the more murky.
How to close joint credit accounts once your divorce is complete
If you are the spouse ordered to pay a jointly held credit account after
the divorce has been finalized you, of course, should do as the court
has ordered you to do and pay on the account consistently until it is
paid off in full. If the process of going through a divorce has not sworn
you off the use of debt then I’m not sure that anything will. Having
a plan, being intentional with your money and living on a budget will
be essential to your coming back from any financial difficulties associated
with your divorce. If you intend to get control of your money it is best
to not utilize credit in the future if at all possible, in my opinion.
With that said, you will want to at least close any credit account that
was held jointly by yourself and your ex-spouse. Although much of our
day to day personal financial matters can be handled online, you will
not be able to close a credit account on the internet. For that, you will
need to either pick up the phone and contact the creditor or you will
need to write a request to close an account and have the letter mailed
to the creditor’s address.
A final statement with your balance of $0 should be requested at that time.
You never know when a creditor has applied a last second “late fee”
to a bill that you were unaware of. The next thing you know, you’re
checking your credit score in a year or two only to find that the account
that you thought you had closed with a zero balance actually had a small
balance the whole time. Get something in writing from the creditor that
your account has either been closed successfully or has a balance of zero.
This will provide you with a great deal of peace of mind when actually
closing out an account.
Finally, do not make the mistake of thinking that just because the Final
Decree states your jointly held account is to be closed that it will be
just because of the divorce being done. You or your spouse will be ordered
to contact the creditor directly, close the account once the balance is
zero and to receive confirmation that the account has been closed successfully.
Tomorrow’s blog post will cover a hypothetical couple going through a divorce
Today’s points may have been somewhat unclear because of the nature
of what we are discussing. Financial discussions can be complex so I would
like to illustrate the points we made in today’s blog by going through
a hypothetical couple’s divorce in tomorrow’s blog. By inserting
you, our reader, into the role of one spouse you can put yourself in the
position of a spouse getting a divorce to better understand the process
of handling credit accounts in a divorce and the importance of doing so.
In the meantime if you have any questions about divorce cases in Texas
please do not hesitate to
contact the
Law Office of Bryan Fagan. A free of charge consultation with one of our licensed family law attorneys
is only a phone call away. Consultations are always free of charge and
can do a great deal to assist you and your family during this difficult time.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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