4 Tips to Maintaining Good Credit During a Divorce
It may be time to divorce your spouse, but there’s no divorcing your current credit score. Major financial decisions are made while emotions are high and budgets are slashed in half. It’s critical new divorcés understand the importance of maintaining a good (a great) credit score during and after the legal split. From buying a new home to cars and sending children to college, your new single tax filing can carry some serious financial baggage. But with help from financial advisors, divorce attorneys and your own budget-conscious, there is such a thing as divorcing with good credit.
1.Understand Your Credit Accounts, Especially the Joint Ones
Depending on the marriage length, many people forget about the Macy’s card they enrolled in to save on a present from six birthdays ago. Pull your credit report and take note of the account labels: individual, joint or authorized users.
While the forgotten Macy’s card should be debt-free, that’s likely a unique case. Any debt in the individual accounts will be your sole problem with your new single status. However, if you live in one of the nine community property states any “individual account” acquired debts count as joint debt. That may or may not be good news depending on your former partner’s spending habits; joint debt means both parties are responsible for paying it off. Finally, authorized users grants the person access to the finances but by legal definition says they aren’t responsible for the balance. While this often applies to older children, it also applies to spouses or through some medical credit lines, like at the dentist\’s office, for example.
The biggest thing people tend to forget about is co-signing, according to Phoenix divorce attorney DeeAn Gillespie. Her first reminder to clients: a divorce is a deal with the courts, not the lender. If your ex falls behind on monthly car payments a year after the divorce, it will still pop up on your next credit report.
To avoid future damage, and in some more extreme cases of revenge, you’ll have to transfer the remaining debt into an individual account (a new one, especially for those in community property states) so one person assumes full responsibility. Part of the divorce proceedings will include who become the “individual”- not the friendliest of divorcé discussion topics, unfortunately.
While divorce attorneys will fight for the best interest of their client, mediators and the courts tend to go off a “check and balances” system
2. Agree to Pay Your Share and No More
Division of debts and assets is part of every divorce. In some scenarios, for multiple reasons, one spouse will agree to take on a larger part of the debt than the other. However, it’s important both parties agree to what they can realistically afford. Some divorce attorneys will advise clients to meet with a trusted financial advisor who can outline their current lifestyle and set a post-divorce budget. Deciding who gets the house, if anyone, is a monumental decision that can also be met with compromises. For instance, if the wife gets the house she may be asked to give up spousal support or be asked to pay more credit card debt. Initially this may seem great; however meeting with a tax advisor before agreeing to such an arrangement could be critical to starting your divorce with financial security. Are there mortgage payments? Are the monthly bills too high for a smaller income? Is money lost in the divorce worth the house- money unable to be spent on groceries or back-to-school necessities? These are just some important questions to consider when deciding who gets the house and all other debts and assets.
3. Don’t Give Into Spontaneous Spending
Whether it’s to relieve stress, to buy things while you can or just purchasing items the two of you were planning on buying anyway, stop. “By doing so, it may appear that you are attempting to sabotage the other party’s creditworthiness,” Phoenix divorce lawyer Scott D. Stewart says. “And if it’s your account at the end and you have difficulty paying the bill, you’ll be sabotaging your own creditworthiness.” To make sure neither of these scenarios happen, as unlikely as they may sound now, open your own checking account and start depositing your paychecks in it. Also consider any auto-payments for joints accounts to come from this new individual account to make sure there’s no surprise “late fees” down the road. If you don’t currently have a salary, there’s still ways you can start building your own credit.
4. Keep Tabs on Joint Accounts
Because credit accounts are through lenders and not courts, they can’t always be transferred into individual accounts. Even if the divorce agreements name the other spouse as the payee, ask the lender to send you a copy of the statement each month. If the person is defaulting on their payments, pay the bill and contact your divorce attorney immediately to go over your options. In some states, the courts generally order the defaulting spouse to cover all out-of-pocket and legal fees for resolving this issue. Finally, change all your PINs and bank account passwords so no one else can access your finances. Don’t forget to add new and unknown security questions as well. This adds a necessary security level to your now independent and fresh financial beginnings.