Divorce can be stressful and downright exhausting. The last thing you want to worry about during the termination of your marriage is your credit reports, credit scores or the prospect of not being able to get a mortgage loan as a result. The truth is that your credit is actually going to need a lot of attention and protection during the divorce process. If you ignore this, you may find yourself in the middle of a messy situation, especially if you want to open credit accounts in your name after divorce.
Understand Divorce Decree Limitations
When you eventually settle with your ex-spouse, the court will issue a divorce decree as part of the process. Your divorce decree will detail the rights and duties assigned to you and your ex-spouse. Included in your divorce decree will be a list of jointly acquired marital debts and who’s responsible for paying each one. So far, so good.
Keep in mind that the need to eliminate joint accounts doesn’t end with auto loans and mortgages. If you opened joint credit cards with your ex, you should close those.
Well, maybe not: Just because your ex-spouse is assigned financial responsibility for your joint credit accounts, that certainly doesn’t mean he or she is going to pay them on time. And, the divorce decree does not protect your credit reports and credit scores from possible damage if payments aren’t made in a timely manner. In fact, your creditor doesn’t care what your divorce decree says because he or she wasn’t a party to the agreement.
If your ex fails to make timely monthly payments, the lender is going to report late payments to your credit reports as well as your ex-spouse’s credit reports. And worse, if the account goes into default, the creditor can come after not only your ex, but you, as well, regardless of what your divorce decree says. And your pleas of “but he/she agreed to pay that bill” will fall on deaf ears.
Joint Bank Account Separation
All this said, the first challenge you need to tackle during a divorce is the elimination of joint accounts. Some couples choose to refinance their mortgages into the name of one spouse and exercise a cash-out option to secure funds to pay off other joint debts. Other couples may sell the assets (e.g. a vehicle or home) to a third party to eliminate joint debts. In the worst situations, bankruptcy may be on the table as a way to protect yourself from creditors, though this option will likely cause severe credit damage for the next several years.
Keep in mind that the need to eliminate joint accounts doesn’t end with auto loans and mortgages. If you opened joint credit cards with your ex, you should close those. Yes, closing a joint credit card might have a negative impact on your credit scores, but the account closure is still important if you wish to protect your credit from late payments and new indebtedness in the future, especially if your ex is still using the card.
Rebuild Credit After Divorce
Single or married, it is not a bad idea to remain credit independent. Few people, however, employ this strategy. Having said that, even if your credit is damaged or if you have no credit, you may be able to qualify for a secured credit card or a credit builder loan. You can also ask a loved one to help you by adding you as an authorized user onto one of his or her existing, well-managed credit card accounts.
Monitor Your Credit Reports
In a perfect world, your divorce would be an amicable process through which both you and your ex could emerge on the other side with credit reports and scores unscathed. Unfortunately, sometimes an ex may take actions that could harm your credit during a divorce, as it is often a contentious and adversarial process. Because your credit reports are always going to be ground zero for potential mismanagement of credit accounts, it’s in your best interest to monitor your reports regularly to ensure nothing negative is being reported as a result of your ex-spouse.