Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Jun 18, 2012

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Divorce is stressful enough without having to worry about debt, but unfortunately debt is a problem that must be addressed by both parties. A divorce agreement may say who is responsible for certain personal loans, but it does not dictate whose credit is on the line in the event of a default.

Despite what most believe, a divorce agreement will not trump a contract for personal loans. While a divorce order may dictate who is legally responsible for payments, the personal loan does not suddenly change ownership following a divorce, at least in the eyes of the lender. Courts and attorneys may agree that an individual member of a failing marriage is responsible for payments, but lenders may not.

Joint personal loans are typically taken out when the credit histories of two spouses are needed in order to qualify for financing. If one spouse has bad credit while the other has good credit, then a lender may require both spouses to share responsibility of a loan before agreeing to issue any money. When lenders approve joint personal loans, they assume both spouses will repay the debt.

In the event a divorce agreement holds one spouse responsible for a joint debt, but that responsible spouse defaults, lenders will likely report the default of both individuals to credit bureaus, which may result in heavily damaged credit scores.

Because both individuals’ credit scores are on the line, a non-responsible spouse may still find it necessary to repay a debt.

For instance, imagine an ex-wife who is ruled to pay for a joint personal loan debt. If she does not pay as agreed, then the ex-husband’s credit score will be affected.  In this situation, the ex-husband may simply consider making the loan payments, regardless of the divorce or court agreement, in order to avoid a negative impact on his credit score. Money can be regained at a later time, once a hired attorney is given time to present the case before a judge, but credit scores are much more difficult to fix.

And don’t think that the changing of names and locations will exonerate divorced borrowers from their contracts. Lenders will still pursue a divorced couple, despite any changes in personal information.

By staying in touch with lenders and keeping tabs of all personal loans, borrowers will be better able to handle problems as they arise. To help repair any damage to their credit, divorced borrowers can establish credit in their own names by successfully repaying any outstanding personal loans. By relieving oneself of all outstanding debt that was derived during a marriage, a divorced borrower can move on from their previous relationship and wipe their hands clean of previous financial obligations.