Parties should order their credit reports to verify what debts are reported under whose names. Under federal law, parties are entitled to obtain free credit reports. These can be ordered online from https://www.annualcreditreport.com. Note that it is illegal to order someone else's credit report without authorization. The Fair Credit Reporting Act has serious penalties for the ordering of a report without proper authority. 15 USC 1681b, 1681n.
If joint credit cards cannot be paid off and closed, parties should explore the possibility of transferring joint debt to separate credit cards to allocate the liability in accordance with their settlement.
Of course, economic factors may outweigh the legal risks to a party's credit rating: the parties need to think about which debts have the best interest rates or payment schedules or which are least likely to be enforced. Often parties simply do not have the funds to establish new households and also to pay off debts.
Short of paying off a debt, there is no sure way to protect one spouse from exposure if the other spouse fails to pay a joint debt. When possible, attorneys should avoid the problem altogether by assigning responsibility for debts to the person whose name appears on the debt or to the person who has the most to lose if the debt is not paid.
When one spouse assumes a debt bearing the other spouse's name, a judgment should require the assuming spouse to attempt to remove the other spouse's name from the debt. If the assuming spouse has a good credit rating and sufficient income, a third-party creditor will sometimes agree to release the nonassuming spouse from liability or will refinance the debt in the assuming party's sole name. However, creditors are often reluctant to give up a potential pocket to collect from, and refinancing is often expensive.
Judgments may include various security devices to ensure that a party actually pays the debts he or she has assumed. These devices include liens on other property awarded to the assuming spouse, life insurance to provide funds in case the assuming party dies, an award of attorney fees for enforcement, or the right to offset other obligations between the spouses. A party with adequate bargaining power can sometimes demand a conditional wage assignment or power of attorney to sell assets belonging to the debtor spouse, with the wage assignment or power of attorney only to take effect on the other's default in payment. However, not all of these security devices will survive a bankruptcy proceeding.
Under federal law, a spouse whose credit rating is affected by the other spouse's nonpayment of debts may insert an explanation in his or her own credit reports explaining that the debt in question should have been paid by the other spouse. 15 USC 1681i. This might mitigate credit problems, but it does not make the innocent spouse whole. For more information, contact our firm.