divorce+&+credit

8/10/2019 Divorce+&+Credit

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By Mik e Rober ts

The Credit Solut ionCopyrigh t 20 12 b y Mike Roberts


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Copyrigh t Inform ation:

Copyright 2011, 2012 by Mike Roberts

All rights reserved. No part of this book may be reproduced, distributed,

transmitted, stored in a retrieval system or used in any form or by any means,whether electronic, mechanical or digital, except as may be expressly permittedby applicable copyright laws or as expressly allowed by the publisher or theauthor in writing.

Publisher Information:

Published by Smart Consumer Solutions, LLC, 601 Van Ness Ave, STE E869San Francisco, CA 94102.

Disclaimer:

All of the information contained in this publication is true and accurateaccording to the best information available to me at the time of publication.Please understand, however, that laws and credit industry practices andprocedures are constantly evolving; so you should independently update laws,practices and facts before you take action. I do not accept any responsibility forerrors or mistakes of any kind, or for any damages or losses that might resultfrom the use of any information provided.

Also, I am not a lender, a collection agent or a credit reporting agency. I am notan accountant or an attorney, and nothing in these materials is intended asprofessional advice. It is personal opinion only. I am providing it to you withoutany warranties or guarantees whatsoever. To obtain advice as to the tax or legalconsequences of any action covered in these materials, or any action that youmight consider based on these materials, you should consult an attorney, anaccountant, or both. What I have tried to do here is simply offer solid, usefulinformation that I have obtained through my own personal and businessexperience. Any action you choose to take based on any information that Iprovide, including forms and other attachments, is entirely your responsibility.


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Table of Cont ent s

Introduction: ................................................................................................... 3

Why is maintaining (or restoring) good credit so important?.................... 3

Why do people run into credit trouble after a divorce? ............................ 5

Should you be worried? .......................................................................... 5

Can this be true? Is this fair? .................................................................. 6

How to protect your good credit if youre still married. .................................... 8

Get a handle on all debts........................................................................ 8

Establish credit in your own name. ......................................................... 9

Close any joint obligations. .................................................................... 9

What to do if youre in the middle of your divorce. ......................................... 12

What to do if youre already divorced. ............................................................ 13

If your credit is still OK. ........................................................................ 13

If your credit is damaged...................................................................... 14


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Introduction:

I f youre reading t his bonus report , youre in one ofthree very common sit uations:

You expect to be div orced:Youre married now, but you think theremight be a divorce in your future. You dont see it happening next week,or maybe not next month, but you have reason to believe its coming.

Youre in th e midd le of a divor ce:Youre working through a divorceright now. Youre still hashing out the details, and the final agreement ordecree has not yet been filed.

Youre d ivor ced:Your divorce is complete. Its final. Your marriage is inthe past and youre doing your best to move on and build a new life.

If youre in one of the first two categories, thats good. Preventive maintenanceis always better, and less painful, than corrective surgery. This report will showyou steps you can take now, before the decree is entered, that will help youhold on to a good credit rating once the divorce is final.

If youre already divorced, and your credit has suffered as a result, all is notnecessarily lost. Theres a lot you can still do to help yourself. Youll learn abouta program that you can follow to work out settlements with your creditors,resolve your financial difficulties, and repair your credit.

Why is m aint aini ng (or r estori ng) good credit soimportant?

The modern economy r uns on credit .This is not a cash society. Unless youare very wealthy, youre going to use credit (financing) to buy most of theimportant things you need. Youll get a mortgage if you buy a home, youllfinance your car whether its new or used, and more likely than not youll use acredit card for everything else- - from food and clothing to home furnishingsand appliances.

Credit costs m oney. Financing isnt free. You pay interest on your mortgage,interest on your car loan, and interest on your credit card charges. The lowerthe interest rate the better, of course; and people with good credit qualify forthe lowest rates. People with damaged credit dont. They pay more, sometimesa lot more. Heres how it works.


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There are three major credit reporting agencies (Experian, Equifax andTransUnion). These huge companies keep data on each of us that creditorseverywhere (banks, finance companies and credit card companies) regularlyreport to them. If you apply for a bank loan, the bank immediately will contactone of these agencies to get an up- to- the minute credit report on you. Among

other things, this report will list all of your debts and flag any that have a poorpayment history or are in collections. The information in the report is used tocalculate your credit score (also known as your FICO score or your creditrating), and the bank looks at the report and the credit score to decide what todo about your loan application.

Borr owi ng costs less if you h ave good credit. Creditors use the credit reportsand scores to predict the likelihood of repayment based on past performance. Ifthey see that a person has had trouble paying in the past, they assume thepattern will continue and they charge a higher interest rate.

If your credit report shows that all your debts are current, youve never fallenbehind on anything, and your credit score is high, youll get the loan you applyfor and youll pay the lowest interest rate available. If the report isnt so strongand your credit score is lower (you have a spotty payment history), you mightget the loan but youll pay a significantly higher interest rate. If the report isbad and the credit score is really low (youve defaulted and gone intocollections more than once), either you wont get the loan at all, or youll getthe loan but youll be forced to pay a ridiculously high rate of interest.

The cost of a bad credit score can be enor mou s.The difference in theinterest rate you pay on a loan can cost (or save) thousands of dollars in the

short run, and tens of thousands over time. Heres how a difference of only 2%can affect what you end up paying for your house.

Lets say you have good credit and you buy a home. You finance$200,000 over 30 years at a rate of 5%. Your monthly payment (principaland interest) will be $1,073.

Now lets assume your credit isnt so good, and you have to pay a lessattractive rate, say 7%. Your monthly payment jumps up to $1,330.

In the first year alone, youll pay an additional $3,084 because of your

weaker credit. Over the life of the loan, your lower credit score will costyou an astonishing $92,520 .

The same principal applies whenever you finance anything. If your credit ispoor, the real out- of- pocket cost of whatever you buy will be much higher. Theonly way to defend against this is to establish and maintain a good creditrating. This isnt easy under the best of circumstances, and it can be muchmore difficult to do if youre going through a divorce.


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Why do peopl e run in to credit tr oub le af ter a divor ce?

People end up in financial difficulties after a divorce for a couple of reasons.

Reason #1:The first reason is obvious, and most people understand it alltoo well: It simply costs more to run two separate households than itcosts to run just one. When two people get divorced, their combinedexpenses usually go up and their combined income usually doesnt.

Reason #2:The second reason is not obvious, and most people dontunderstand it at all: The fact is that unless precautions are taken, thecredit ratings of both parties will be damaged after the divorce if eitherparty falls behind on paying a debt. The financial consequences for bothparties, not just the one who fails to pay, can be disastrous.

All too often, a hard working, innocent divorcee doesnt learn that her personalcredit has been severely harmed until after the damage is done. The purpose ofthis report is to alert you to the danger, and to show you the steps you can taketo either prevent or repair damage to your credit rating.

Shoul d you be wor ri ed?

You probably should. The truth is that the lurking, downstream credit problemis something of a sleeper. Most people with good credit going through adivorce dont realize its there. Their past credit history gives them a false sense

of security.

The prob lem isnt t he divor ce decree.If you were to stop in at your localcourthouse and start thumbing through all the divorce decrees on file there,youd soon notice that they have many common features. In particular, youdsee that most of them do a pretty good job of nailing down two importantissues:

Property r ight s: Most decrees spell out in detail what rights the partieswill have in various items of property (Brenda Smith will have soleoccupancy of the family residence on Middle Street, Michael Smith will

have sole use of the 2010 Toyota Highlander, and so on).

Financial obl igation s:Most final orders carefully dictate who will beresponsible for various financial obligations going forward (Michael Smithwill pay the existing mortgage on the Middle Street residence, MichaelSmith will make all future payments on the 2010 Toyota Highlander,Brenda Smith will pay the outstanding balance on the CitiBank credit card,etc.)


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The problem is how people understand their d ivorce decree.There isnothing wrong with these common provisions. Property has to be divided up,and financial responsibility has to be assigned. These are both importantmatters, and they have to be covered in most decrees. The problem isnt with

the provisions; its with how the parties understand them.

If you were to track down the fictitious Brenda and ask her whether shehas any further obligation on the Middle Street mortgage, chances areshe would say, NO WAY! Thats Mikes problem. Thats all spelled out inthe divorce decree.

If you were to ask Brenda if she might be liable for Mikes ToyotaHighlander payments, she would say, NO, the divorce decree handlesthat.

Finally, if you suggested to Mike that he might have some future liabilityfor the CitiBank bill, his response would run along these lines: Hey, thecourt told Brenda she had to pay that. The CitiBank card is all on her.

Brenda and Mike would be wrong on all counts. They both will remain on thehook to all three creditors after their divorce is final.

Can th is be true? Is th is f air?

Really? you might ask. How can this be? Wasnt the whole point of the divorceto let Brenda and Mike cut their ties and lead separate lives going forward?Well, yes, that was the point; but the divorce decree only controls the futurerelationship between Brenda and Mike. It has no control at all over anyone else,and certainly not their creditors.

The divor ce doesnt aff ect th e ori gin al loan cont racts.When Brenda and Mikebought the home on Middle Street, they both signed documents (a note andmortgage or a trust deed) promising to make the payments. They eachaccepted a separate, independent obligation to pay the entire debt (the legalterm is joint and several liability).

Under the contract, the mortgage bank has the right to come after bothBrenda and Mike, or either one of them individually, if the paymentsarent made on timeand not just for half of the balance due. Each oneof them has a freestanding, separate obligation to pay it all. If Mikedoesnt make the mortgage payments after the divorce, Brenda iscompletely on the hook. It doesnt matter at all that the divorce decree


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says that only Mike has to make the mortgage payments.

Almost certainly, the Highlander loan and the CitiBank card both work thesame way. If Mike doesnt make his car payment, the finance companycan demand full payment from Brenda. If she doesnt pay her credit card

bill, CitiBank can come after Mike for the entire balance.

Divorce court s have no power over creditor s.Theres a simple reason whythe creditors keep all their rights against both spouses after the divorce: Thecreditors are not parties to the divorce, and courts have no power to rewrite acontract (like a mortgage or a financing agreement) unless both parties to thecontract are named in the legal action.

Nobody names his mortgage company as a party when he files his divorcepapers. If you looked at 100 petitions for divorce, youd see that only thespouse names appear on the document. They are all captioned Michael Smith

v. Brenda Smith or the like. You will never see one titled Michael Smith v.Brenda Smith, First Mortgage Bank, Toyota Financial, and CitiBank. Why not?Because the typical divorce court has no jurisdiction over third- party creditors.Even if an enterprising lawyer were to name a creditor as a defendant in herclients divorce petition, the creditor immediately would ask to be removed as aparty and the court would grant the request.

Because creditors are not made parties to divorces, nothing in the final decreeaffects them in any way. They keep whatever rights they had under the originalfinancing agreements.

This m eans th at if Mike f ails to pay, Br endas credit suf fers.If Mike doesntmake Brendas mortgage payments, then Mikes poor payment performance willshow up on Brendas credit report. Why? Because if the bank doesnt get paid, itsimply reports that fact to the three big agencies that issue credit reports(Experian, Equifax, and TransUnion), and it does so under the names of everysingle person who originally promised to pay. If Mike falls behind, Brendascredit rating will suffer the same as Mikes, even though she did nothing wrongand might not even be aware, at least for awhile, that Mike has failed in hisobligation.

So thats the problem. Most married couples borrow money from time to time

as they move along in their married lives. When they do, they normally sign thestandard loan documents that the lenders put in front of them; and thesealmost always require separate, individual promises to repay. If the borrowerslater get divorced, the separate promises to repay remain in place. They dontdie when the marriage dies, and all too often, they come back to haunt at leastone of the divorced parties.


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OK, so th e probl em is clear. What can you do about it?Actually, theres quitea bit you can do. Exactly what steps are available to you will depend on whereyou are in the processwhether youre

Still married with no petition yet filed,

Married with petition filed but not yet granted, or

Divorced.

How t o prot ect your good credit i f youre st i l lmarried.

This section is going to cover several options to help you maintain good credit.As you read through it keep this in mind- - Your m ain focus, if yo ure sti l lmarr ied and have not yet f i led p apers, should be on gett ing contr ol overyour f i nances and bui lding your own credit history . The followingparagraphs will help you see how to do that in a variety of situations.

Get a hand le on all debt s.The first order of business is to getcontrol. If youre the person in the marriage who normally pays all the bills andhas all the paperwork and files relating to those bills in one handy place, thengreat. If youre not, you need to realize that youll have to take care of thesematters for yourself after the divorceyou might as well get a head start.

Get everything in one place. If necessary, start your own file, withsubsections or folders for each individual debt.

In each folder put a copy of the original loan documents (note, mortgage,financing agreement, credit card agreement, whatever). Read thesecarefully and determine whether youre both legally liable for the account.

Include copies of recent invoices. Make sure you know whether the

account is current, whether the payment history is OK, and who to

contact if you have a question about the account.

If youre not able to put together a list of all your debts, or if youre not sure

youre accounting for everything, get a copy of your credit report from one of

the three major credit reporting agencies (Experian, Equifax and TransUnion).

This report might show old store accounts or other obligations that are not

active but still open. It also might show problems with open accounts that you

thought were OK.


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balance to zero somehow and then close it. Here are your options:

o If you have enough cash, use it to pay off the card. Then cancel it.

o If you cant pay off the account, you and your spouse need to open

two new individual accountsone for each of you. Pay off the joint

account by transferring the outstanding balance to the two new

cards. If its reasonable to just divide the balance evenly between

the two of you, do it. If it isnt, youll need to work out an equitable

split.

o If your joint account creditor wont cooperate in transferring the

balance and closing the account, then draw cash advances on the

new accounts and use the money to pay off the joint account. Then

close it.

Smaller secur ed loan.If the account is secured, this makes things more

complicated because you have to decide what to do with the security

(whatever it was that you bought with the money you borrowed). If you

borrowed money to buy a huge plasma TV, the TV is the security. This

type of account always has a balance because once it is paid off, it ceases

to exist.

o If youre dealing with a relatively small loan, and you can find the

cash, pay it off. Do this whether you expect to end up with the

security (the car or the TV) after the divorce or not.

o If you cant pay off the loan, consider refinancing it. The new loan

should be in the name of the spouse who will be driving the car or

watching the TV after the divorce. This refinancing option should

be available unless the security is worth less than the amount

owed. In that case, you might have to come up with some cash to

put the new deal together. For example, if you can only borrow

$12,000 on the car and the outstanding balance on the currentnote is $15,000, youll have to find $3,000 to put with the new

loan proceeds and pay off the current note.

o If its time to trade the jointly owned car, do it. Make sure only one

of you signs the loan for the new (or replacement) vehicle.


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What about t he mor tg age?This is by far the toughest loan problem to

solve. Usually the balance is too large to even think about just paying it

off with cash or savings. Here are the options if your home is worth at

least as much as you owe:

o

You can refinance it in the name of the spouse who will be making

the mortgage payments after the divorce. Its possible that your

current bank wont agree to a refinancing with only one borrower,

so be prepared to find another source of financing. A good way to

approach this problem is to find a reputable mortgage broker,

explain your objective, and let the broker shop around for a new

lender for you.

o You can sell the home and pay off the mortgage. This can be very

difficult because unless youre in a very strong sellers market, youcant control the timing. You might be forced to move out before

youre ready, or you might find that you still own the property long

after the divorce is final. Regardless, if you cant refinance this is

the only way to protect yourself against the possibility that your

spouse might later fail to make the mortgage payments.

o Note:Whatever you do, dont agree to deed your interest in the

home to your spouse unless your name comes off the loan contract

at the same time. There have been cases in which a husband has

deeded his homestead interest to his wife believing that in so doing

he absolved himself of any further obligation to pay. It doesnt

work that way. The deed identifies only who has legal title to the

property, not who must pay the mortgage. Its always a good idea

to consult an attorney about any deed exchanges.

Your mor tgage is un der water. If your home is worth less than you

owe (and many people today are in exactly this situation), this is the

worst possible scenario. The options are very limited.

o If youre current on your mortgage, and you financed through

Fannie Mae or Freddie Mac, you might qualify for the federal Home

Affordable Refinance Program (HARP).

o If youre not current on your mortgage and youre in danger of

default, you might be able to get the loan modified through the


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federal Home Affordable Modification Program (HAMP).

o How these programs work is beyond the scope of this report, but

you can contact your lender to find out if you qualify. Even if you

do, youll both likely have to sign the new documents for the

refinanced or modified loan. From the point of view of preventing

future credit problems, all these programs will do is lower the

payments and make it somewhat more likely that your spouse will

be able to handle them after the divorce. Youll probably still be on

the hook.

What to do i f youre in t he m idd le of yourdivorce.

If the divorce is friendly and neither of you has an attorney, you can work yourway through the necessary steps by dealing directly with your spouse. Ifrelations have broken down and you arent able to work together, youll have todo it through your legal counsel. Regardless, its not too late to help yourself,even if until now you havent done anything to protect your future credit.

You can still cancel any joint credit cards or revolving accounts that haveno balance.

You can freeze any accounts that you cant close. Even if there is a

balance, you can inform the creditor in writing that no further charges onthe account are authorized and that you want the account to becomeinactive. This doesnt close the account, but it will stop your spouse fromusing it.

If you freeze an account, youll then have to make sure it is promptly paidoff, or that minimum payments are made going forward. If your spouseagrees to do this, be sure to confirm the status of the account asnecessary. If he wont agree, or if he doesnt pay, youll have to do it.Borrow the money from relatives or friends if you must. You simply cantafford to have the account become delinquent. In the long run a lowered

credit rating will cost you far more than it will cost to pay off the account.

As far as any home mortgage goes,

o If your spouse has the financial strength on his or her own toqualify for a refinancing and will agree to it, thats first prize.


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o If your spouse doesnt have the necessary financial muscle, but thetwo of you signing together can get refinancing, you might want toconsider it. You should think about it even if your spouse will besolely responsible for future mortgage payments according to thedivorce decree. The lower the payments, the more likely your

spouse will be able to make those payments and preserve yourfuture credit.

o Try to get any refinancing completed before the divorce is final. Ifthat isnt possible, consider putting a provision in the decree thatrequires your spouse to cooperate in refinancing. Your lawyer canadvise you how to proceed on this.

o Regardless of any refinancing, if youll be living in the former

marital home after the divorce, you want to be free to sell it later.

You may have to sell if your spouse doesnt make the payments

and you cant afford them. This scenario will quickly trash yourcredit rating, so talk with your lawyer about how best to handle this

issue. There are a couple of possibilities:

Have your spouse deed his interest in the property to you as

part of the settlement. This is the cleanest solution, and its

best for you. Failing that,

Include a provision in the decree requiring your spouse to

sign the deed when the time comes.

o Of course, you can sell the home, or apply for any refinancing or

modification programs that might be available, as already

discussed.

What t o do i f youre alr eady d ivorced.

I f your credit is sti l l OK.If your divorce is behind you and youre nowsingle, youve still got some options if your credit isnt yet damaged.

You can still deal with any joint unsecured accounts as already discussed.You can cancel those with no balance and freeze the rest until you canmake arrangements to pay them off. Dont forget to make any minimumpayments that might be required.


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You wont be able to refinance as a couple, but both you and your formerspouse can seek out refinancing on any property that you separatelycontrol. If youre driving a car that is jointly owned and financed, you canask your former spouse to sign over his interest in it so you can get anew loan and take him off the hook. In exchange, hell do the same on

the car hes driving.

You want to be sure to have direct confirmation that your spouse ismaking timely payments on any joint obligations that survived thedivorce. Youre entitled to copies of all invoices, even if youre not payingthem, and you should make sure you get them from your spouse or thecreditors. You also will be well advised to get a copy of your credit reportregularly (at least annually). Any problems that you might not know aboutwill show up there.

I f your credit is damaged.If youre divorced and your credit hasalready suffered, either because your spouse has been irresponsible or becauseyou just have not been able to make ends meet, then you need to repair it. Ifyou dont, it will cost you a fortune over the years to come.

If youre in this unhappy situation, then we can help you. We have developed astep- by- step plan that is specially designed to help people like you repair theircredit. Our program includes:

Detailed guidance on how to approach creditors to negotiate debtsettlements.

Instructions on what to say to creditors and how to say it.

Educational materials and forms that you can use to learn how to budgetand manage your finances going forward.

Form letters and other documents, complete with instructions, that youcan use to negotiate and document settlement of your problem debts.

If you have poor credit because of your divorce, let us help you fix it. Youll findour program both user- friendly and effective. Unfortunately, nothing can fixyour credit over night; but with time, using the tools that we provide, you canmake that happen. To take the first step toward improving your financial life,please go to our website.

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