If you’re like most people, you’ve heard your share of divorce horror stories involving bankruptcy, maxed out credit cards and other financial nightmares tied to divorce. While many of these stories are true and based on fact, not fiction, it doesn’t mean that it has to happen to you. If you’re concerned about divorce impacting your credit for the worse, read on as we offer some practical advice that can help you protect your credit score.
Aside from a spouse hiding or wasting marital assets, the biggest concern is remaining financially-tied to a spouse through joint credit cards, auto loans, and mortgages. When you continue to share an account with a spouse after the divorce is where you can get into a lot of trouble. Why? Because, even if the divorce decree says that your spouse is liable for a debt, that doesn’t matter to creditors.
For example, your spouse can agree to pay a $10,000 joint credit card account, but if he or she can’t afford to pay it for some reason and it goes into collections, not only can the credit card company go after you, but your credit will take a hit. The best way to protect your credit before, during, and after a divorce is to cut all financial ties with your ex so their financial behavior can’t impact your FICO score.
Cutting Financial Ties
Essentially, the goal is to eliminate risk by dissolving the joint accounts and hopefully you can do this before the divorce is finalized. To do this, you ‘ll need to pay off and close joint accounts or remove each other’s names from joint accounts so they’re in one spouse’s name alone, or both.
If any joint accounts, such as a mortgage survive the divorce, it’s important to monitor the account monthly. The reason is that if your spouse defaults on an account and your name is still on it, it will damage your credit since you’re liable too.
“But what if the divorce decree says my ex is liable for the debt?” As long as your name is still on the account, the only way to protect your credit is to pay the payment when it comes due if your ex fails to. Then, your legal recourse is to take your ex back to court to get that money back. Otherwise, if he or she fails to pay the account and your name is still on it and you do nothing, it will hurt your credit. Not only that, but the creditor is not bound by the divorce decree, so the creditor can use legal tools to go after you for the money owed on the account or loan despite what the divorce agreement says.
To protect your credit, see if you can do away with all joint accounts with your ex, and this usually includes credit cards, auto loans, and mortgages. If you have further questions or if you’re looking for an attorney, contact us at (949) 565-4158 to request a free consultation.