Liquidating Accounts in a Divorce

by Ciele Edwards
What you do to your accounts during a divorce can have future implications.

What you do to your accounts during a divorce can have future implications.

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For many, a divorce is an emotionally devastating experience. Unfortunately, a divorce can also be a financially devastating experience for those who do not properly liquidate shared assets and pay off joint debts. Although separating all of your joint accounts may seem like more trouble than its worth – especially in a complicated divorce – doing so helps you preserve your credit rating and ensure that the divorce doesn't destroy your financial security.

Liquidating Accounts

When a company goes out of business, the company limits its losses by selling off as much merchandise and equipment as possible before closing its doors. Divorcing couples can reduce losses in much the same way. When you liquidate your assets, you exchange them for cash that you and your ex-spouse then split. Cashing out a joint bank account or selling a home you share a joint mortgage on are two examples of ways divorcing couples can liquidate their accounts.

Benefits

When you liquidate an account, you are no longer responsible for it. This protects you in the event the judge awards responsibility for the account to your former spouse and your former spouse does not keep up with the payments. For example, if you and your former spouse share a joint auto loan and your spouse gets the car in the divorce, you are both still legally responsible for the payments because your name is on the loan. According to the Federal Trade Commission, your original loan documents outweigh your divorce decree.

Effects

If you do not liquidate and separate as many of your shared accounts as possible and your former spouse stops making payments, your credit will suffer. Joint accounts appear on both parties' credit reports. When your former spouse misses a payment, both credit reports suffer the blow. The same is true if you miss a payment on an asset you and your former spouse shared. Not only can failing to properly liquidate your assets cause credit damage, it could also land one or both of you in legal trouble. A creditor can file a lawsuit against you for debts the divorce decree assigned to your spouse.

Considerations

You can liquidate accounts connected to an asset, such as mortgage or auto loan, by selling the asset and using the proceeds to pay off the loan. Unfortunately, not all joint accounts are connected to an asset. Credit cards are one example of joint accounts that are solely a liability. It's crucial that a divorcing couple immediately close joint credit card accounts. Doing so prevents either of you from making additional purchases while you work together to pay off the debt.