Money Management & Divorce: Untying the (Debt) Knot

By Dawn Handschuh, Personal Finance Writer Archive

When love is in the air, thoughts of mortgages and car loans probably aren't. But when divorce appears on the horizon, personal finances should be among your top priorities.

Jointly-held credit cards should be closed immediately to end any shared liability with your future ex-spouse. Because new credit card debt can accumulate quickly, this should be the first thing you do.

But don't stop there. Jointly-held debt can also complicate installment debt like mortgages, car loans or boat loans. (If you're unsure which debt is jointly held, review your credit report.)

Don't be lulled into security

In the divorce decree, the court divvies up responsibility for shared debts. But by itself, a divorce judgment won't invalidate a loan agreement. So while the court may decide that your ex pays the boat loan and you pay the car loan, lenders still consider you jointly responsible.

If you rely on the court ruling and do no more, lenders will put you in their cross hairs if your ex skips payments or files for bankruptcy. Lenders will pursue you for payment, possibly sue. and file damaging reports that will stick like glue to your credit report for years.

Sever the cord

Whenever possible, try to sell the asset, preferably before the divorce is finalized. Close all shared accounts. If all you've done is agree to sell the asset, you're still on the hook for payments.

If one of you isn't willing to part with an asset, that person should refinance it in their own name before the divorce. You'll have to go through the formal loan application process. It's the only way to remove your name from a joint loan.

As for cars, don't take your name off the title, as this removes ownership but not loan responsibility.

Don't burn bridges

If it's not possible to close or refinance a major shared debt, cooperate with your ex as best you can to make on time payments. Sign up for automatic payments and an online account.

Proactive money management is the key to ensuring that your ex's debt doesn't come back to bite you.