Couples in the process of divorce spend a lot of time divvying up their assets. But in today's miserable economy, experts maintain that soon-to-be-exes should take even greater care dividing up the debts.
Otherwise, your former spouse's job loss could end up hitting your balance sheet -- and credit report -- years after you think the divorce is settled.
"This is one of the more difficult things to do and people often forget about it," said John Ulzheimer, director of consumer education at Credit.com. "But if you don't do it, or don't do it right, it can not only cost you money, it can cost you your credit rating for a long period of time."
Unfortunately, even people who think they are dividing debt often aren't dividing it legally -- despite approval from a divorce court, experts say.
Couples often think that they can assign repayment of debts in the process of a divorce -- e.g., you repay the Visa; I'll take the AmEx -- said D. Michael Bush, a Newport Beach-based lawyer. But unless they got the creditor's approval -- in addition to the court's -- the assignment is not legally enforceable, he said.
"There has to be an upfront agreement that includes the lender, or the lender can go where the money is -- it doesn't matter what you did in court," he said.
So how do you properly divide debt?
First, order credit reports.
Everybody has the right to one free credit report every year from each of the three major credit bureaus. Now is the time to request one at www.annualcreditreport.com. On the report, you'll see that each credit listing shows the status of your account, when opened, when closed (if applicable) and whether the responsibility is individual or joint. These reports also show your payment history with each debt, the addresses your creditors have on record, and the names under which you have received credit.
Under normal circumstances, it's wise to check your report once annually for errors and signs of identity theft, such as new addresses and new credit that you didn't secure. In a divorce, you need the credit report because you're likely to find old accounts you'd forgotten about that have never been properly canceled, said Bill Hardekopf, chief executive of LowCards.com.
Next, cancel joint credit cards.
If both you and your ex are authorized users on credit card accounts, those cards should be canceled. If the cards have revolving balances, you must pay off the balances with other assets or transfer the debt to cards that are newly issued in just one name.
