Getting a divorce? Protect yourself financially

When you're in the middle of a divorce, credit issues aren't usually at the top of your priority list.

"One thing I didn't do during my divorce was research on my credit card accounts," says Cheryl Meredith of Katy, Texas. "Now my credit is completely ruined and I can hardly get credit anywhere." Unbeknownst to Meredith, her ex-husband had added her name to a credit card years before and ran up the balance.

The credit card balance isn't Meredith's only problem. Since her ex-husband didn't refinance his car in his name, the vehicle still has her name on it, further restricting what she can borrow. Her advice to divorcing couples: Check your credit report before the divorce is final and consider hiring a lawyer who will help you sort through credit issues.

Loans, credit cards and credit reports are only a few of the nuts-and-bolts items that you have to pay attention to in the course of your divorce. You also need to think about your mortgage, bank accounts, investment accounts, wills and even the mail.

"Despite the many difficult emotions it involves, divorce is really a business transaction," says Brette McWhorter Sember, J.D., author of "The Divorce Organizer and Planner." "Business transactions that are handled in an organized and careful way tend to be successful." If you focus on staying organized, you're more likely to not only receive a fair settlement, but also avoid credit problems.

Preserving your credit
Credit scores and reports are the key to borrowing and can also affect the kind of jobs you get and where you can rent. During a divorce, you need to not only protect your own credit from any possible fallout from your soon-to-be-ex-spouse, you also may need to establish credit in your own name if you don't have a solid track record of your own.

Sember recommends that you get a copy of your credit report from all three major reporting agencies at the beginning of the divorce process to see what accounts are open in both of your names and if there are any surprises. Crosscheck the credit reports with the credit cards, loans and bank accounts that you have open and double check the balances.

Rob Seltzer, CPA, who had trouble with credit cards following a divorce, recommends that you periodically check up on your credit reports after the divorce is finalized to see if any problems or new issues surface related to the joint credit that you had during your marriage.

Some people in a divorce have never had credit on their own outside of their marriage. If this is the case for you, apply for your own credit card as soon as you know you'll be divorcing to establish some credit on your own.

Checking up on credit cards
As soon as a divorce is under way, do an inventory of the credit cards in your wallet. Make a list of the ones that are joint accounts and the ones that are in your name only. Check old files to see if there are any statements from cards that you're not currently using.

Mark Warshavsky, a CPA and forensic accountant who works on many divorces, believes it's important to track down credit cards to avoid potential damage to your credit if one spouse runs up lots of bills. "I've seen cases where a spouse continues to charge on an account and the statement isn't going to the house, so the other spouse doesn't know what's going on," he says.

Once you know what joint credit card accounts are active, you have a couple of options, according to Sember. Cancel any cards that don't have balances. With the cards that do have balances, either freeze the account until the divorce is final or each partner can transfer part of the balance to their own individual credit card account and pay it off separately.

"You can notify the credit card company that there is a divorce action in progress, so that you want the account frozen," says Cicily Maton, a certified divorce financial planner in Chicago, Ill. "Then you just make minimum payments until the divorce is final and you know who is responsible for the debt."

In the case of freezing an account, the final divorce agreement will address who is responsible for which debts; interest on the debt will continue to accumulate and one spouse will be designated to make at least a minimum payment. Remember, if the ex-spouse who is supposed to pay off the credit card or cards defaults, the credit card company can go after you for that debt, since it was incurred while you were joint account holders, Sember says.

"If John is supposed to pay off a credit card and he doesn't and the credit card company goes after Mary, Mary can turn around and sue John," she says. "Some divorce decrees will order John to close the account and roll the debt into his own account, and if he doesn't he's in contempt of court."

Dealing with loans
For many divorcing couples, the mortgage on the family home is the largest joint loan. Each couple has to decide whether the family home will be sold or whether one partner will remain in the house with the responsibility for paying the mortgage, taxes and upkeep.

The final divorce decree is your guide in this situation. The agreement will usually give the party that is holding onto the house a certain time frame to refinance and get the mortgage in that name. The refinancing removes the other spouse's liability, and in many cases, money from the refinancing will pay off that spouse's portion of the equity in the house.

"Getting your name off the mortgage is important for the spouse who is leaving the family home, as well as for the spouse who is staying there," says Maton. It enables the partner leaving the house to get credit to buy a new home. "If you have an obligation for one property and are trying to buy a new one, that affects your credit score," she adds.