How Will My Divorce Affect My Credit?

Man checking credit score on phoneYou know that divorce will affect your finances. You may be losing your spouse’s income, or have to pay child support or spousal support. Your living expenses might well consume a larger percentage of your household income. One question you may have forgotten to ask yourself, though, is “how will my divorce affect my credit?”

There’s good news and bad on that (credit) score. The good news is, the act of getting a divorce will not itself affect your credit in any way. That said, some of the financial changes involved in a divorce could wreak havoc on your credit score. It’s up to you to be aware of what could go wrong, and to take steps (with your attorney’s help, of course) to avoid credit pitfalls.

Joint Debt and Divorce

One perilous area is joint debt. Many couples have joint credit cards, home equity lines of credit, and other forms of indebtedness for which they are jointly liable during their marriage. How that debt is handled before and during a divorce can have a profound impact on your credit rating.

Many people make the mistake of believing that once their divorce judgment states that their now-former spouse is responsible for a debt, they no longer need to worry about it. Unfortunately, nothing could be further from the truth. Many lawyers do not do a good job of explaining what happens to marital debt after divorce.

Let’s say that you and your spouse had a joint credit card during your marriage, which carried a $5,000 balance at the time of the divorce. You agree to each pay half of the balance. You pay your half promptly, but your ex just stops paying altogether. The bills go to your ex’s address, so you don’t find out for months that no payments have been made. By now, your credit is affected by the non-payments.

Unfair, you say? Yes, perhaps—but not illegal. The agreement in your divorce settlement that each of you would pay half of the debt was between you and your spouse, but the credit card company did not sign off on that agreement. Your agreement with them was that you and your now ex-spouse would each have full liability for the debt. That agreement is not affected by your divorce judgment. So when you failed to honor your agreement with the credit card company by making sure that at least minimum monthly payments were made, your credit score took a hit.

You do have some recourse against your ex. You can go back to the court that granted your divorce and seek reimbursement for any debts you needed to pay that the judgment made your ex responsible for. Unfortunately, that won’t repair the damage to your credit.

How to Prevent Credit Problems After Divorce

It is a wise idea to obtain a copy of your credit report even before filing for divorce. (You are entitled to a free copy of your credit report every year, and should take advantage of this even if you’re not divorcing to make sure there are no errors which could damage your credit.) Use the report to make a comprehensive list of all accounts that will need to be dealt with, including those you may have forgotten about.

The best course of action is to be proactive and avoid having any joint debt with your ex-spouse if at all possible. If you have joint credit cards, cancel them and, if you can, pay off any debt before your divorce is final. If you are unable to do this, it may make more sense to cancel the card and transfer any remaining debt to a card in the name of the person you agree should be responsible for it. When you cancel joint accounts ask the issuer of the account to not re-open the account.

Before you take these steps, be certain that your “joint” credit card account really is just that. You may believe that you have joint credit cards, when, in reality, one of you is simply an authorized user on the other’s account. If that is the case, there may not be a need to cancel the card. The owner of the account can remove the other spouse as an authorized user.

Don’t forget about debt other than credit cards, such as car payments and mortgage payments. If your soon-to-be ex will retain the house, car, or other asset on which you have joint debt, do whatever is necessary before divorce to have the debt transferred into their name with the creditor. If this is not possible, and you must remain jointly liable on a debt after divorce, never take it for granted that your ex is making the necessary payments; confirm for yourself that regular payments are being made. Do not rely on credit monitoring services for this confirmation. By the time they receive information that payments have not been made and notify you, your credit has already been affected.

While many people struggle financially after divorce, it is also true that for many people, financial problems are part of the pressures that helped cause their divorce. If you think that the financial problems you experienced during your marriage are severe enough that they might lead to bankruptcy, discuss this with your divorce attorney. He or she will be able to advise you as to whether filing for bankruptcy before divorce would be more advantageous to your credit than doing so afterward.

Last but not least, remember to create a post-divorce budget for yourself to help you adjust to your new income and expenses, and avoid credit problems of your own creation. If you are concerned, as most people are, about how divorce will affect your financial well-being, we invite you to contact our law office for a consultation.

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