Key Considerations About Divorce and Credit
While divorce often causes a person to take inventory, many people forget the implications of divorce and credit. Many married couples or life partners jointly apply for credit cards, auto loans, and mortgages. Part of learning how to build credit means that you learn about how divorce can complicate your credit situation.
If you and your partner kept all credit separate during your marriage, you will not be impacted by your ex-spouse’s credit behavior at any time before, during, and after your marriage. However, if your spouse is an authorized user or joint holder of a credit card, an angry former spouse can start lots of problems with respect to divorce and credit. With joint accounts, both you and your ex-spouse are jointly responsible for debt and therefore are affected by each other’s financial decisions. For example, your ex-spouse’s late payments and collection notices show up on your credit report after the divorce if you have not split the accounts.
The best move is to cancel these cards rather than risk the negative effects of someone else’s mismanagement. Some credit card companies may require a special type of notice to cancel jointly held cards, such as a written notice. Doing this as soon as possible is in your best interest in terms of divorce and credit. After a divorce, your ex-spouse may need to charge many things to make up for reduced income. Even if your ex is not being malicious, this could harm your credit score by causing your utilization rate (the balance as a percentage of the credit card limit) on jointly held credit cards to increase.
If you and your ex-spouse own a home together, both are charged with paying off the debt unless you work out another arrangement. Aside from selling the house, your best option may be to pursue refinancing. Using a quitclaim deed, you can take your name off the title of the property, but this is not enough when it comes to divorce and credit. Your ex must also refinance, or your credit will suffer if he or she becomes delinquent on payments.
On the other side, if you retain ownership of the home and do not put the property in your name, you could be affected if your ex-spouse is sued. The house might be seized to pay off your spouse’s debts.
If you are separated, you may want to take a few steps to prepare yourself, especially if you think you are heading toward divorce. Pull your credit report and assess your financial situation, noting all existing credit accounts. Keep copies of everything in a safe place. If you have joint accounts, have a discussion with your spouse about who will assume payments for which credit accounts. If you are on peaceful terms with your spouse, have a frank discussion about divorce and credit, and how you can both protect yourselves. Consult an attorney, and create a plan to keep your payments on schedule and your credit protected.
To protect yourself from the pitfalls of divorce and credit, cancel your joint accounts, and make sure you contact all credit bureaus to ensure that your address information is updated.