Myths About Divorce Decrees
Divorce lawyers may tell you that your creditors will accept the divorce decree and relieve you of your ex’s debt. Don’t believe them. When two people jointly apply for credit, they sign a legal agreement to the creditor to pay back the debt. If one can’t pay, the other is responsible. A court cannot overturn contracts between individuals unless they are fraudulent or not lawful. A divorce does not fit either of these definitions, so the contract remains in tact until the contract ends (when the debt is paid off).
I can’t tell you how many letters I’ve received that go basically like this:
I was divorced 4 years ago, and in the division of our debts, my divorce decree specified that my ex-wife was responsible for the mortgage. She gave up some equity in investments so she could keep the house, which I Quit Claimed over to her.
My new wife and I applied for a mortgage recently. To my surprise, we were turned down because my ex is currently 90 days late on the mortgage, and it’s showing up on my report. I contacted the credit bureaus to dispute this, but they won’t take it off. What can I do to get this off my report? The debt isn’t mine.
The answer to this question is always:
“Dear Worried Ex:
Unfortunately, you can’t do anything. If the mortgage is still in your name, you are still legally responsible, no matter what the divorce decree says.”
So what’s the deal here?
Myth 1#: A divorce decree can relieve a spouse from financial obligations of joint debts.
Fact: Debts that were obtained in the name of both spouses before a divorce (meaning both the husband and wife signed a document or application saying that they were both responsible for the debt) remain the obligation of both parties after a divorce, no matter what a divorce decree says.
Myth 2#: A divorce decree protects my credit if my ex-spouse doesn’t pay the debts they were assigned in the divorce.
Fact: If you have a joint financial obligation with your ex-spouse, and your divorce decree states that your ex-spouse is responsible, and your ex-spouse is delinquent on paying, your credit as well as his is affected. As stated above, your legal responsibility for a debt does not go away because a divorce decree assigns responsibility for a debt to your ex-spouse. Along with a legal responsibility to pay comes the right of the creditor to report a debt delinquent on your credit report if it is not paid as agreed in the original contract. Period.
Especially tragic are situations where one ex-spouse files bankruptcy and includes many joint debts in the BK. The spouse not filing bankruptcy is left holding the bag for these joint debts, and many times is not notified of the ex-spouse’s filing until months or years down the road when it is too late to correct the situation. So not only is the spouse who didn’t file BK responsible for the unpaid debts (and can be legally sued for them), but the non-filing BK spouse’s credit also is ruined – something that cannot be corrected – because the credit bureaus have the right to report them delinquent.
Why? Because both of you signed a legally binding contract with the creditor, and the divorce decree does not amend this contract. Amendment of any contract requires agreement by all parties (including the creditor). Proof of the amendment requires the signature of all parties. During a divorce, the creditors are not even consulted, let alone a part of the divorce courts, and therefore the original agreements/contracts stand. Consequently, if your ex-spouse does not pay a debt that he was assigned in a divorce decree, then you are responsible for it.