What Divorce Decrees Really Mean for Your Credit When Your Ex Stops Paying a Joint Debt

Do one thing: When divorcing, don’t take on any new debt with your soon-to-be-ex for convenience, even if the loan is included in a court decree. Here is more information on joint debt after divorce and its credit impact. 

Data Shows Joint Debt After Divorce Can Drain Your Finances and Affect Credit

Ending a marriage takes an emotional toll, of course. But the financial ramifications shouldn’t be discounted. Couples who go through a divorce sometimes find themselves facing financial hardships they never saw coming. 

• Research shows that many divorced adults (even those who marry again) don’t do as well financially as those who stay together.
• Attorney fees aside, people who have gone through a divorce often have lower household incomes and less wealth than their married counterparts in the U.S., according to the Pew Research Center (PRC). 

• Divorced adults who are not yet retired have a lower median income per household (just under $85,000) than married adults. This includes those in first marriages (median household income of $118,600) and those who have married again (median income of $114,600).

The statistics on wealth are similarly discouraging. Working-age adults who are divorced and not remarried also have significantly less median household wealth (at $98,700) than those in first marriages ($326,900) and those who are remarried ($329,100), according to Pew.

How to Manage Creditors, Contracts and Courts 

These are big discrepancies, particularly when it comes to wealth. What’s driving the gap? In large part, debt.

Joint Debt and Credit

A divorce decree can assign responsibility between spouses for debts, but lenders are not a party to those agreements and can still come after either person named on an account. This means your credit report can take a hit even when a loan is no longer your legal obligation.

Contracts and Joint Debt

“The divorce decree divided the responsibility. It didn’t divide the debt,” says Matt Chancey, Certified Financial Planner (CFP), founder of Tax Alpha Companies and bestselling author of Tax Alpha Solutions. “That’s because a divorce involves two separate contracts, and only one of them got rewritten.

• The decree is an agreement between two people, enforced by a family court.
• The loan is an agreement with a lender, and the lender wasn’t in the courtroom.

Until a name comes off the account itself, both people owe every dollar, and every late payment lands on both credit reports, no matter what page seven of the decree says.”

How to Protect Your Credit After Divorce

Protections come in two layers, says Chancey, and the order matters:

• Paper Layer. The paper layer is the divorce decree itself. A well-drafted one doesn’t just assign the car loan to your ex. It includes:
  • An indemnification clause, which is part of the decree that requires your ex to pay you back if you end up covering a debt that was supposed to be theirs.
  • Sets a deadline for refinancing the debt into their own name.
  • Spells out consequences if they miss it.

• Court Protection. If an ex stops paying, he explains, you can:
  • Go back to family court.
  • Ask a judge to enforce it, including through contempt, asking the court to penalize your ex for violating the divorce order, which can include fines or other consequences.
  • That’s real leverage, but it has limitations.
    • It can’t reach back and erase the late payments already sitting on your report. Court enforcement is a reimbursement tool, not a shield,” Chancey says.

Separate as Much as Possible

It can be beyond frustrating and expensive to end a marriage and comply with court orders only to find that your ex isn’t doing the same. Unfortunately, it’s not an unusual situation. Certified Divorce Financial Analyst Easton Price, CFP, with Prosperity Wealth Planning in Irvine, California, encourages clients to separate legal issues from financial ones whenever possible before signing off on the divorce. 

Prioritize Credit and Financial Protection Throughout Divorce

“One of the primary goals during the divorce process should be eliminating as many shared financial obligations as possible before the divorce is finalized,” says Price. “Legally, [spouses] may have remedies available through the divorce decree if their former spouse isn’t complying with the court order. Financially, however, the priority is often protecting their own credit and long-term financial stability.”

Here are some more tips to help protect and rebuild your credit after a divorce. 

Steps to Take Before the Divorce is Final

Every joint account or joint debt that survives the divorce is like a live wire running from your ex’s finances into your credit file. Chancy tells clients to take these steps before the divorce: 

• Refinance a mortgage or car loan into one name. 
• Close or pay off joint debts like credit cards rather than leaving them open out of convenience. 
• Get written confirmation from lenders when account changes occur. 

What to Do When Your Ex Won’t Pay Joint Debt

For those who have an ex or soon-to-be ex that isn’t paying joint debt despite a court decree, hang in there. While this can be financially challenging, Chancey advises you to: 

• Pay Joint Debt Minimums to Protect Credit. Keep making minimum payments on any joint debt you can, even if the decree says it isn’t yours. Yes, it’s unfair, but protecting your credit score is cheaper than repairing it, and the decree gives you the right to chase reimbursement for every one of those payments. 

• Review Credit Reports. Pull your three main credit reports for free at annualcreditreport.com from Experian, Equifax, and TransUnion.
• List Joint Debt Accounts. Make a list of every account with both names still on them.
• Review Deadlines. Put the decree’s refinancing deadlines on your calendar.
• Take Legal Action. Alert your attorney of the missed deadline the day they are not met. 

The Bottom Line on Joint Debt After Divorce

As stated previously, it’s smart to work with an attorney to enforce a divorce agreement, says Price, but you also have to protect your financial future. “If missed payments threaten their credit or ability to borrow going forward, continuing to make payments and pursuing reimbursement may ultimately be the more prudent financial decision.”

With reporting by Casandra Andrews