Divorce can affect your credit score!

In many marriages, one spouse pays little to no attention to the household finances. But if the marriage is coming to an end, both spouses need to be concerned because divorce can have a substantial impact on both of their credit ratings.

The act of divorce itself doesn’t impact your credit. But divorce is rife with financial issues, and the division of assets and debts can have a huge impact on the credit history of both you and your spouse.

Perhaps the main impact of divorce on credit involves joint accounts. A divorce decree will spell out who is responsible for which accounts, but it will not actually remove one spouse or the other as an account holder. Thus, it is still up to you or your former spouse to remove the name of the person who is no longer responsible. The person who is no longer responsible for the account should ensure that his or her name is removed, particularly from any jointly held debts, so that he or she will not be liable in the event the other spouse fails to make the required payments. Failure to ensure the removal of your name from such accounts can negatively impact your credit for a long time, even if your spouse’s actions occur years after the divorce is settled.
                               

Your liability for debts incurred during your marriage may depend on the law in the state where you reside. In community property states, such as California, the law presumes that you and your spouse are entitled to half of what the other earned during the marriage, and are responsible for half of the debts incurred. However, in equitable distribution states, the law requires that assets and liabilities be distributed equitably and fairly between both spouses.

During divorce proceedings, while your name is still attached to jointly held debts, you should ensure that timely minimum payments are made toward each debt, in order to protect your credit history. Even if your spouse has historically made those payments during your marriage, he or she may not continue to do so during the divorce. If the divorce decree provides that your former spouse is required to make payments on accounts held in your name, you should monitor the activity on the account closely to ensure that the payments are made, since the lender will still hold you responsible and it will be your credit that is impacted by any failure to make timely payments.

Another area that is significantly impacted by divorce is each spouse’s income. What is affordable when two spouses’ incomes are pooled is often not affordable when the same amount of income must support two separate households. This may be particularly true when children are involved and one spouse keeps the family residence, with the same mortgage amount and living expenses, while the other spouse must acquire and maintain a new, separate residence. You will need to ensure that you can manage to pay all necessary expenses subsequent to the divorce, or you may find yourself falling behind on payments and that will negatively affect your credit.

Your good credit may be extra important in the event of a divorce, since it will be the sole basis on which lenders will decide whether to grant you a car loan or mortgage. Prospective landlords may consider your credit history in determining whether to lease you a new home. Therefore, it is extremely important that you do what you can to protect your credit during your divorce.

Source: Secondary