Tip #7: Dividing Debt andProtecting Credit Are Important

Don't Overlook Credit and Division of Debt

The importance of credit and debts are often overlooked. But the long range effects of any settlement must include liability management and planning. And there are a number of pitfalls.

Always plan using net figures. For example, if a piece of property is to be sold for $50,000 and you are to receive one half, remember that your net share will not be $25,000, but $25,000 reduced by the costs of sale, the payment of any mortgage, the payment of taxes, and the payment of lawyer's fees.

Before the divorce, look into the status of your credit. If you are authorized to use a credit card but are not obligated on the account (which is often the case), you may have no credit history and therefore no credit. If an account is used by both of you during the marriage, that does not that mean that both of you have credit ratings and credit histories.

There are ways in which credit can be established for someone who has never had credit: For example, you can go to a bank and take out a small loan (get a relative to endorse your note, if necessary); put the proceeds in a savings account; and repay the loan with interest. Then use this credit source to get other accounts. Don't use expensive services to accomplish this

Make sure to obtain your own credit history before you divorce. One spouse may be penalized because the other has not paid debts incurred during the marriage. If there have been credit problems in the family in the past, there are ways in which to reestablish credit. Check into them.

If there is a joint obligation or account, as far as the creditor is concerned, each of you is fully responsible, regardless of what the court order says. This means that if your spouse is obligated to pay a joint debt or a debt that you have incurred and doesn't do so, the creditor can sue you for payment. Sure, you can bring a court action to enforce the order, but what if your ex has left the state? And what about the expense involved?

Look into how the debts created during the marriage will be divided and paid. And remember, if the other party is required to pay for a car in your name and the other party refuses to do so or leaves the state, you are responsible. The court order has nothing to do with the bank. Look to alternatives to avoid these situations.

So when it comes to dividing up debt, you may want to consider: 1) Getting security from the spouse who is obligated to pay the debt like a savings account or stock that will be returned when the obligation is paid but that is available if the obligation is not paid; 2) Purchasing a small life/disability insurance policy to secure the obligation; 3) Getting the obligated spouse to refinance the account so it's not in your name or so your car is not security for the debt.

REMEMBER: The filing of bankruptcy either during or after the divorce may affect your credit and disrupt everything you planned...and paid for. Make sure you talk to your lawyer about this very important area of concern.