How Divorce Effects Credit

In the midst of the emotions and turmoil of a divorce, one of the few things people consider is the impact the break-up will have on their credit. There’s no way to avoid discussing finances when assets are divided, but what effect does money management when married have on a newly single’s ability to get credit? With half of all marriages in the U.S. ending in divorce, the implications may have unintended consequences for a large section of the population. Don’t be left in the dark, know your rights. Dissolving a relationship, whether married or not, will go more smoothly if you’re able to work together. Deciding how to best handle shared assets and debt will require civility and cooperation to protect both credit ratings. Your creditors aren’t interested in how you divide your property and a court order will not eliminate what you owe, but all joint accounts must be either paid-off or made the responsibility of one of the account holders.
Credit Scores Consumers who borrow money for any reason have credit reports in their name that include their financial history from their single and married years. These reports are used to calculate their credit scores. For a single person, the condition of their reports and scores are due solely to their own behavior, but those of a married individual may be a direct result of their ex-partner’s behavior. While getting a divorce won’t have an immediate effect on your credit scores, how you resolve your credit accounts may have an impact later. Financial activity is reported for each individual associated with an account, so if you’re listed as a joint owner, cosigner, or authorized user, you’ll need to make some decisions, either close the account completely or ensure that one name is totally removed from the account.

One important warning in this regard is for those who live in a community property state where property purchased during a marriage is equally owned by both husband and wife. Mismanage or default on the mortgage and both credit scores will take a big hit and you may lose perhaps your biggest investment – your home.

Credit Cards

Overspending with a credit card may continue to haunt after the divorce papers are finalized. There is no such thing as a joint credit card account; so the account holder will be liable for any outstanding debt. If you’re listed as an authorized user, you also won’t be responsible for any of the debt. In the case of a marriage that has gone sour, this could leave the account holder carrying a massive amount of credit card debt without the means of paying it off. This is why all credit card balances need to be paid off each and every month. The credit card company is not a partner in your divorce proceedings. Your contract with the credit card company is a separate agreement that can be enforce in a court of law. So any court order making you responsible for a credit card debt in your ex’s name is between you and your ex. You either make the payment or reimburse your ex. There is great potential for damage to your credit score, if your ex racks up overwhelming debt on an account in your name. As a general rule, anyone getting a divorce should call their credit card companies to remove their ex’s name from the accounts and also have yours removed from theirs.

Joint Accounts

Co-owning a car or home may have seemed like a good idea when you were happily married but the cause of much grief when the relationship ends. The solution is to divide the assets that have a lien attached, making one partner responsible for each formerly joint account. While there’s no way to avoid seeing the resolution from the perspective of winner and loser, separating the accounts will protect the credit of both partners ensuring the opportunity to own your own in the future. Overseeing your finances is important whether a divorce is involved or not. Understand all terms and fine print of every financial agreement you enter into. Request a copy of your credit reports at least every six months. Check for accuracy and report any errors immediately to the credit-reporting agency.

Noreen Ruth: A popular writer on many financial blogs and websites. Hoping to educate consumers, she uses government and other reputable sources to provide up-to-date, relevant news. She stays current on the latest legislative actions that may affect a consumer’s ability to manage debt, settle debt problems, utilize debt reduction services and applying for credit cards. Click here for additional credit and credit card information.