Divorce is a process that reshapes personal relationships and also profoundly affects financial circumstances, including each spouse’s credit. Understanding the potential impacts of divorce on your credit is crucial to navigate this challenging period and plan for your financial future successfully.
A primary concern is the intertwined reality of your credit with your former spouse’s. Shared credit accounts, such as mortgages, credit cards and car loans, can be areas of concern if not handled properly. How these accounts are managed during and after the divorce can significantly impact your credit score and overall financial health.
Joint debts in divorce
In a divorce, shared debts are typically divided by a court-ordered property division order, either after litigation is complete or a court approves an agreed-upon settlement. Despite this division, creditors don’t have to abide by this arrangement as they aren’t a party in the civil matter of divorce. As far as a creditor is concerned, both parties who initially agreed to the debt are responsible for repayment, irrespective of the divorce decree.
If your ex-spouse is responsible for a joint debt per the divorce decree and defaults or makes late payments, it could negatively impact your credit. Even if the divorce decree legally binds your former spouse to pay off the debt, the creditor can still pursue you for repayment until the account is paid off. Be aware of this as you’re crafting a property division strategy.
Protecting your credit during divorce
To protect your credit during a divorce, it’s generally recommended that you separate your credit accounts as much as possible. Close joint credit card accounts and aim to refinance any joint loans. This separation can help to ensure that your credit score is determined by your financial behavior and not impacted by your ex-spouse’s actions.
If it’s impossible to close or refinance a joint account immediately, monitor these accounts closely to ensure all payments are made on time. Regular monitoring will allow you to address issues before they hurt your credit score too much.
Divorce can be a tumultuous time, both emotionally and financially. Understanding the potential impact of this transition on your credit and taking steps to protect yourself can help secure your financial future. Remember, while a divorce decree can divide debt responsibilities between spouses, it doesn’t change the original contracts with your creditors. Understanding this distinction is critical to protecting your credit during and after a divorce.
