The world seemingly resolves around our credit scores. The difference between a good, a fair, and a bad credit score can make a significant difference of hundreds of dollars in monthly payments, and in some cases, being accepted or rejected for loans. Credit is an oft overlooked issue in divorce cases. A positive credit rating is critical to establish a new residence, purchase vehicles, and start a new, single life.
In some instances, the actions of one party can have the effect of damaging the credit rating of the other. This often happens in the context of one party failing to pay the mortgage on the home or other joint responsibilities. This can be due to financial stress of a divorce, such as maintaining two residences, or as a result of intentional, malicious actions of a party.
Whichever the reason, it is imperative that a litigant, and particularly the party who may not be paying the family expenses, pay close attention to whether bills are being paid while a divorce is pending. If it seems that obligations are not being paid, it is critical to take action in order to protect yourself.
The courts in New Jersey have recognized the importance that a credit score has in our society. In the case of Cameron v. Cameron, the court noted that “it is critical to consider the economic significance which credit reports, credit scores, and credit-worthiness presently have in everyday American life.”
The relevance of a healthy credit report, and the paramount interest which every person has or should have in protecting and improving one’s credit profile, cannot be overstated. In addition, it is important to consider the fact that once the divorce is over, there are also precautions to be taken.
In the Cameron case, the parties were divorced, and their settlement agreement provided that:
“…it is the intent of the parties that the wife shall maintain and keep the marital home… Husband shall execute a quit claim deed transferring his interest in the former marital home to wife, and husband’s attorney shall hold the same in escrow pending wife’s refinance of the mortgage in her name. Wife will have nine months from the date of this agreement to obtain refinance of the mortgage in her name.”
This is a very common provision which is found in many settlement agreements. In this case, however, the wife failed to refinance the mortgage removing the husband as an obligor. The husband did not take any action to enforce this obligation initially when the nine months passed.
However, a couple of years after the divorce, he went to purchase a new home of his own. When he applied for a mortgage, he discovered that his credit rating had been negatively impacted, and he was unable to obtain a favorable rate for a mortgage as a result of the fact that his name was still on the mortgage for the former marital home. He then made an application in court seeking enforcement of the settlement agreement and to appoint him as attorney-in-fact to sign any documents to list the home for sale and sell it.
The court agreed with the husband and granted his request. Importantly, however, the court’s decision took notice of the fact that:
“…as a matter of indisputable knowledge, a positive credit rating and score is one of the most valuable and important assets a party may presently possess. Simply put, a strong credit report and score can enable one with relatively limited assets or income to make substantial purchase is which he or she could not otherwise afford…. Reciprocally, a negative credit rating and score can have a detrimental and sometimes disastrous effect on the party’s financial health, often crippling the party’s ability to obtain a loan, either at a favorable rate or at all, for significant purchases such as a house, car, school tuition, or other expensive items, will potentially and simultaneously limiting the individuals healthy financial growth for years.”
This acknowledgment by the court is very significant. As a practical matter, when an agreement provides time to a party refinance a mortgage or loan, it is important for the other party to regularly check his or her credit score.
Additionally, when deadlines pass under the terms of an agreement, it may be critical to take appropriate action to enforce its provisions. While this can be sometimes emotionally difficult given the fact that former spouses and often children are living in the house, the repercussions can be devastating.