Can Divorce Affect My Credit?

 Posted on April 21, 2016 in Divorce

Divorce can be difficult, both emotionally and financially. In addition to costly legal fees, asset division, child support, and other items that can take a financial toll, people often wonder if their credit score can be affected in any way by divorce. Having a healthy credit score is a major key to financial independence post-divorce, as many possible future changes, such as renting a new apartment or purchasing a vehicle, require a good credit score. There are a few ways that divorce can positively or negatively affect your credit score. If you are about to divorce, or already in the midst of one, here are a few things to pay attention to regarding your credit score.

You Are Still Responsible for Shared Debt

Most married couples open shared accounts, such as shared credit cards or a joint mortgage. When you divorce, the name listed on an account is responsible for that debt, regardless of the parties' marital status. Lenders expect payment, so it is important to pay attention to joint accounts when dissolving your marriage. If your soon-to-be ex decides to stop making payments, you are still responsible, and your credit score could be damaged. For those fortunate enough to divorce amicably, payment arrangements can be made for the benefit of both parties. Others divorcing with more conflict may find it difficult to divide debt, and should consider other options to avoid risking their credit scores. A wealth planning manager with Wells Fargo recommends that divorcing couples either:

• Remove one party from the account so that only one spouse is responsible for the debt;
• Close accounts and reopen them in just one spouse’s name; or
• Freeze accounts until an agreement can be reached.

Before your divorce is finalized, ensure that you know exactly what debts for which you are responsible, and those that your ex is going to pay. If your ex would like to keep the family home, or is unwilling to sell other marital assets with outstanding obligations, have the debt refinanced in your ex’s name.

The Burden of Divorce Expenses

One New York City divorce attorney says that today’s complex custody cases commonly cost $20,000 or more, and most clients do not have that type of money available at the time of their divorce. An expensive divorce can be challenging, and can lead to missed credit card payments, further debt, or a lien on your home, all negatively impacting your credit.

Specialists recommend using marital assets such as your home or your car to pay down debt you have accrued during your divorce, and suggest sticking to a budget both during and after your divorce. Many people do not anticipate the lifestyle change that is often required to weather a divorce. Your standard of living before your divorce may not be achievable anymore. This can be difficult to overcome, but avoid racking up unnecessary debt that can affect you in the future. Instead, budget, and look for sources of additional income if needed.

Check Your Credit Score Often

Moving forward after divorce requires a good credit rating, and all too often people find their score damaged after it is too late. During your divorce, monitor your credit score closely, and make plans to improve it if needed. If you are overwhelmed by debt, and are forced to choose which bills to pay, be sure you are choosing the ones that will best affect your credit. Not paying important bills could damage your credit drastically.

A Fresh Start

Many couples report finances to be at the center of their marital problems. Your divorce is a chance for you to start with a clean financial slate. Once you have taken care of joint accounts, financial specialists recommend taking steps to rebuild on your own stability. These include:

• Setting a reasonable budget;
• Controlling your spending habits;
• Keep paying off debt and avoid racking up new debt; and
• Learning about finances, if your spouse previously handled your money.

An Attorney Can Help

Divorce is difficult, and no one should have to go through the process alone. If you are divorcing, you need an experienced DuPage County divorce attorney you can trust by your side. Call 630-352-2240 to learn more about the many ways we can help simplify your divorce.

Sources:

http://money.usnews.com/money/blogs/my-money/articles/2016-04-14/5-ways-divorce-affects-your-credit