Most people going through a divorce in Texas know that the laws our of state regarding community property will play a role in their case. If you can count yourself among those that possess this knowledge, you should also be aware that it is not only property that will be divided in your divorce but also debt. While debt may not be as exciting it can pose as many problems as those surrounding property division- if not more so.
Today’s blog post from the Law Office of Bryan Fagan, PLLC will discuss the subject of credit accounts and divorce. I will introduce the subject with some introductory information and then we will get into a hypothetical example that will hopefully illustrate the initial points that we have made regarding this subject.
An introduction to debt and divorce
The types of debt that you and your spouse have accumulated throughout the course of your marriage will determine the type of options that you have for deciding who will pay the debt and how this will be done. For instance, you should be aware that there are two different types of credit accounts: joint and individual. Depending on the type of credit account that you and your spouse selected, different approaches will need to be taken for each.
The simplest way to determine what type of accounts you each have is to pull a copy of your credit report. Once you have done so, for each open account that you have there will be a description of the type of account that it is.
Individual credit accounts
An individual credit account is one that considers only your personal income and credit history when it comes to determining whether or not to extend you credit in the first place, the limits of credit that will be made available to you and what the interest rate will be that is attached to that credit account.
A key point to understand is that if you are listed an authorized user on an individual credit account held by your spouse, that account will be listed on your credit report but the account holder will be your spouse and not you.
Finally, debts incurred on individual accounts may both be the responsibility of you and your spouse in your divorce as Texas is a community property state. As we just mentioned if their individual credit accounts are showing up your credit report and vice versa, that ought to tell you that your actions affect your spouse and vice versa.
Joint Credit Accounts
Credit accounts in both your name and your spouse’s name mean that a credit will be considering your spouse’s income, assets, debts and credit history before agreeing to loan you money and open up a joint credit account. Moving forward you and your spouse are responsible for paying off that jointly held debt. Both of your credit reports will show activity, positive or negative, associated with this account.
Negotiating how to handle these type of debts in your Divorce Decree is extremely important. If you negotiate for your spouse to take on the responsibility of paying off any jointly held credit accounts that have arisen during the course of your marriage the language stating this must be clear, concise and understandable. Meaning- your spouse must not be able to argue that he or she did not understand how to abide by the terms of the divorce decree on this subject matter.
The reason for this is simple- if he or she does not do what he or she is ordered to do in your Final Decree of Divorce, you will need to file an enforcement suit against him or her in order to bring this to the judge’s attention. Why take this step to go back to court? Just because the Final Decree states that the debts are no longer your responsibility does not mean the creditors feel the same way. In fact, if your agreement to repay a debt states your name on it then the Decree will have no effect.
Your credit will be harmed and you will suffer the financial consequences of your ex-spouse not paying down the debt as agreed in the Final Decree of Divorce. A judge will rely on your Decree’s language to determine whether or not your ex-spouse can be held accountable for his or her failure to pay.
A Decree with unclear language may not be enforceable. This leaves you in a position where you may not be able to have the violations of the order addressed by the judge. Meanwhile, your credit score is dropping and your financial future becomes all the more murky.
How to close joint credit accounts once your divorce is complete
If you are the spouse ordered to pay a jointly held credit account after the divorce has been finalized you, of course, should do as the court has ordered you to do and pay on the account consistently until it is paid off in full. If the process of going through a divorce has not sworn you off the use of debt then I’m not sure that anything will.
Having a plan, being intentional with your money and living on a budget will be essential to your coming back from any financial difficulties associated with your divorce. If you intend to get control of your money it is best to not utilize credit in the future if at all possible, in my opinion.
With that said, you will want to at least close any credit account that was held jointly by yourself and your ex-spouse. Although much of our day to day personal financial matters can be handled online, you will not be able to close a credit account on the internet. For that, you will need to either pick up the phone and contact the creditor or you will need to write a request to close an account and have the letter mailed to the creditor’s address.
A final statement with your balance of $0 should be requested at that time. You never know when a creditor has applied a last second “late fee” to a bill that you were unaware of. The next thing you know, you’re checking your credit score in a year or two only to find that the account that you thought you had closed with a zero balance actually had a small balance the whole time.
Get something in writing from the creditor that your account has either been closed successfully or has a balance of zero. This will provide you with a great deal of peace of mind when actually closing out an account.
Finally, do not make the mistake of thinking that just because the Final Decree states your jointly held account is to be closed that it will be just because of the divorce being done. You or your spouse will be ordered to contact the creditor directly, close the account once the balance is zero and to receive confirmation that the account has been closed successfully.
Tomorrow’s blog post will cover a hypothetical couple going through a divorce
Today’s points may have been somewhat unclear because of the nature of what we are discussing. Financial discussions can be complex so I would like to illustrate the points we made in today’s blog by going through a hypothetical couple’s divorce in tomorrow’s blog. By inserting you, our reader, into the role of one spouse you can put yourself in the position of a spouse getting a divorce to better understand the process of handling credit accounts in a divorce and the importance of doing so.
In the meantime, if you have any questions about divorce cases in Texas please do not hesitate to contact the Law Office of Bryan Fagan, PLLC. A free of charge consultation with one of our licensed family law attorneys is only a phone call away. Consultations are always free of charge and can do a great deal to assist you and your family during this difficult time.
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Other Articles you may be interested in regarding
- The effect of divorce on your credit
- Handling the issue of credit card debt during your divorce
- How are Credit Cards Handled in a Texas Divorce?
- How credit cards and debts are handled in a Texas Divorce
- Debts, Credit Cards and Divorce in Texas
- What Happens to Marital Debt During a Texas Divorce?
- Know How Property and Debts are Divided, When Preparing for Your Texas Divorce
- What Happens to Marital Debt During a Texas Divorce?
- Dividing Property in a Texas Divorce - The Just and Right Division
- Why is Separate Property Important and How to Keep it Separate in a Texas Divorce?
- What Wikipedia Can’t Tell you About Texas Divorce and Marital Property Division
- Texas Divorce Property Division Enforcement
- Separate Property in a Texas Divorce?
- Does it Matter Whose Name is on Title or Deed of Property in a Divorce in Texas?
Law Office of Bryan Fagan, PLLC | Houston, Texas Divorce Lawyers
The Law Office of Bryan Fagan, PLLC routinely handles matters that affect children and families. If you have questions regarding divorce, it's important to speak with one of our Houston, TX Divorce Lawyers right away to protect your rights.
Our divorce lawyers in Houston TX are skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC handles Divorce cases in Houston, Texas, Cypress, Klein, Humble, Kingwood, Tomball, The Woodlands, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County and Waller County.