Divorce Impacts Your Credit
Divorce is an ugly word. It's a traumatic life event, only made worse by lawyers and court fees. The last thing you want to think about when going through such an upheaval is what will happen to your credit. Unfortunately, post-divorce credit is a serious issue, and must be dealt with as soon as possible. It is all too common for ex-spouses to have unintentionally ruined the other's credit when all is said and done.
Getting Divorced
The first thing you and your soon-to-be-ex-spouse should do is get copies of your credit reports. You should be checking it at least once a year anyway, but if you have not, you can order a free one from any of the three credit bureaus. Sit down with your spouse in a non-stressful environment; if it's a nasty separation, have your lawyers present.
By examining your individual accounts and joint accounts, you can begin to see how you should divide up payments. The best thing to do is separate and/or cancel all joint accounts; this includes the house and car! You should sell the house, which may be painful if you have children, but the split equity can go towards paying off other debts and lawyer's fees. One spouse may buy the car from the other, so that the account is in one name only. Joint savings accounts can be closed out and split into your individual accounts. For these transactions, your ex-spouse must be present, as both signatures must be on each financial document. If there are utility bills in both names, have them changed to just one name.
Debt and Marriage
You should also be aware of whether or not you live in a state with community property laws. A community property law states that any and all debt accrued during marriage is the responsibility of both parties, despite who signed the creditor's agreement. Though after a divorce, the debt generally goes to just one spouse, if that spouse begins defaulting on the payments, a creditor can come after the other spouse for payment.
You and the ex may want to sit down with your various creditors and sign agreements stating that one or the other is entirely responsible for the debt in case of divorce - a little bit like a post-nuptial. If you don't do this, it is one of the instances where it will be very important to have documentation from a court, stating who is responsible for which debts. While it may not stop a debt collector from coming after the other spouse, it can put up several significant roadblocks.
Once the courts are involved, you need to be sure that all financial arrangements are documented. This includes not only what you and your ex are splitting up, but what came during the marriage, and even before. You will want copies of tax returns, loan applications, bank statements, property deeds, car registration, insurance policies, brokerage statements, stock statements... everything. Hopefully you have kept excellent financial records, because you will need absolutely everything, especially if the divorce gets nasty. After the divorce is finalized, you will need to inform the creditors, especially if you are a woman and going back to her maiden name.
No one gets married thinking about getting divorced. A marriage ending is painful for all involved, especially children. If you are truly considering divorce, make sure you follow the right path in the separation of finances, or else you could be looking at a low credit score that wasn't even your fault. By being careful, you can avoid the financial pitfalls divorce can bring.
- Understanding Credit:
