Handling Debt After a Divorce
Don't rely on a former spouse to pay a loan that's in both of your names -- your credit report will suffer if he or she is delinquent.
My former husband has lived in our old house since our divorce in 2004. Problem is, we never refinanced the house in his name only. Now he is five months behind on the mortgage. Can I get any of this delinquency off my credit report? Our divorce decree gave him full financial responsibility for the house, but it is still affecting me. I want to purchase a house this summer, and I am scared this is going to hurt me. Help!
Everyone I talked with about your question answered with the same two words: "Oh no."
Unfortunately, there's nothing you can do about the harm that was already done to your credit report. A divorce decree is an agreement between the divorcing couple, but "it does nothing to separate their assets, accounts or financial obligations," says Maxine Sweet, vice-president of consumer education for Experian.
Despite the decree, your name is still on the loan, so you're liable for all the payments, and the mortgage company is unlikely to remove the delinquency from your report.
You need to take action immediately, before the situation gets worse. Because your ex is more than 90 days late on the mortgage payments, your credit score has likely taken a major nose dive. If the bank forecloses on the house, you probably won't be able to buy a house for at least a few years, says Emily Davidson, of Credit.com.
All divorced couples should take note before they end up in a similar situation. "If you're relying on an ex-spouse to pay a debt that's in your name, you need to do something," says John Ventura, author of Divorce for Dummies and the director of the Texas Consumer Complaint Center at the University of Houston Law School. "It's a ticking timebomb."
You could help him with the mortgage payments until he gets back on track. But it's better to get out of the situation. Tell the lender about the divorce and ask if you can be taken off the mortgage. "Several of my clients have had luck getting this done without refinancing," says Chris Smith, president of Capstone Mortgage, a mortgage broker in Lexington, Mass.
If that doesn't work, try to refinance the house in his name only. But that might be difficult to do because of his late payments. "Most lenders will not lend to anyone with more than one 30-day late mortgage payment on their credit report in the past 12 months," says Smith.
Another option is to go back to court and ask the judge to order your former spouse to sell the property before it goes into foreclosure, says Ventura. Or perhaps your ex-husband would be willing to give the house to you and have you make the payments. You could rent it out until it's sold. "There is no easy solution to this problem," he says.
Divorcing couples should never rely on one spouse to pay a joint debt. Tackle the issue upfront by agreeing, for example, to have one spouse refinance within a certain time period or sell the house.