Friday, August 1, 2008

Protecting Your Credit

If you are planning to get a divorce or you are already involved in the divorce process, it is important to protect your credit from potential damage by your spouse. For example, if you have joint accounts, your spouse may be able to damage your credit even if he or she is ordered by the court to assume sole responsibility for the account.

What happens if a court orders one of the parties to be solely responsible for a joint credit account and that party defaults? The creditor is going to come after the other party, even though the court has ordered the first party to pay. How can this be? The contract clause of the United States Constitution prevents courts from interfering with contractual obligations. Credit is a contractual obligation between the creditor and the debtor (you). If you have a joint account with your spouse, and your spouse defaults on a court-ordered credit obligation, the creditor will look to you to pay, and your credit rating will suffer. A bankruptcy court is the only court that can affect your contractual relationship with a creditor.

Since you may be stuck paying for a joint debt, it makes sense to try to avoid placing yourself at such risk. If you are planning for a divorce, get all your joint credit accounts changed into separate accounts, you will need your spouse’s permission to do this. If you are already involved in the divorce process, eliminate as much of the joint debt as you can.

The same is true for joint bank accounts. If your spouse overdraws on a joint account, guess who the bank will expect to pay the overage – you!

Once you are divorced, you will be a single person. You will want to be able to the only person responsible for your credit rating. It pays to take the necessary steps to put yourself in control.

Good luck to you as you leave the marriage zone, and remember to get rid of those joint accounts!

The Basics of Property Division in Divorce

In Colorado marital property is divided in a divorce or legal separation by means of “Equitable Distribution”. “Equitable” does not necessarily mean “Equal”, but for most purposes, and absent unusual circumstances, it is useful to assume that marital property will be divided 50/50 between the parties.

The question then becomes what is the “marital property” to be divided. Marital property is all property acquired during the marriage such as the parties’ earnings and things acquired with such earnings. However, inheritances and certain gifts acquired during the marriage are not considered marital.

“Separate property” is property acquired prior to the marriage, or inheritance or certain gifts acquired during the marriage. The Court has no power to divide separate property. However, any appreciation of separate property during the marriage is marital.

Here is a simple example. A married couple save some earnings during the marriage and buy a house. The parties pay the mortgage with the husband’s earnings. The wife receives an inheritance during the marriage and is careful to maintain this bequest in a separate mutual fund account in her name only. The equity in the house is marital, as is any appreciation included in that equity. The amount of the bequest to the wife is her separate property, but any appreciation of the account is marital.

In most instances, determining what is marital and what is separate property is not difficult. However, the analysis can become complicated in some situations, especially regarding changes to title to real property during the marriage. If you own separate real property titled in your name only but change the title to joint tenants during the marriage (a common occurrence), you may have gifted one half the value of the property to your spouse. For example, Mary owns a condo in her name only, but changes the title to joint tenants after she marries John. John may now be entitled to one-half the value of the condo.

How you title marital property is not critical. For example, the parties buy a car during the marriage with money earned during the marriage, but place the title in the husband’s name only. The car is still marital property.

Even when determining what is marital and what is separate is relatively easy, calculating the proper shares can be difficult. This is true for retirement accounts and pensions earned both prior to and during the marriage. Special Court orders may have to be drafted to accurately divide such assests.

Property division law in a divorce is the same as other law. You must remember that: you may not understand the law; you may not like it; and you may not think its fair; but It’s the Law!