Divorce & Your Credit - 4 Steps You Can Take to Prevent a Credit History Disaster

Last week I talked about one often missed retirement benefits for divorcee’s. This week let’s touch on something, more common: How to handle credit when you, or someone you know, goes through a divorce.

I can’t tell you the number of times I’ve heard people say their credit was wrecked by their ex-spouse during and even after their divorce.  The complaints usually revolve around inflated joint credit card balances and missed mortgage, auto loan, or credit card payments. 

”But the divorce decree says that credit card debt was their responsibility!”

While the divorce decree outlines who is responsible for paying off certain debt after the divorce, it does not relieve you of your joint contractual obligation to pay off the debt.  While the court orders one party to pay off that debt, if payments are missed, both party’s credit will suffer. 

In the event an ex-spouse accidentally misses payments, can’t make the payments or takes steps to intentionally wreck your credit, don’t rely on the court order to protect your credit score. 

Here are four steps you can take to prevent a credit history disaster:

  1. Reach out to lenders and creditors.
    Contact each creditor or lender to inquire about options for changing from joint to individual accounts.  In the event the creditor isn’t willing to release either party from their contractual obligation, look into transferring the balance to a new credit card in the name of the responsible party.  
  2. Get your name off the debt with the help of your attorney.
    Have your attorney craft language in the divorce decree requiring your ex to transfer joint credit card balances to credit cards opened in their name alone.
  3. Monitor your Credit.
    Enroll in an identity theft protection service like Identity Force or LifeLock.  These services will notify you when someone attempts to open an account associated with your Social Security number.  They can also alert you of large credit transactions made by a soon-to-be ex-spouse that are intentionally made to hurt your credit. 
  4. Place Credit Blocks.
    Place a credit lock on with the credit bureaus (TransUnion, Experian, Equifax) which will prevent new credit accounts from being opened.  Most identity theft protections services allow you to easily enable credit locks with the three credit bureaus.

If you’re facing divorce, the sooner you take action to protect your credit, the better.  Waiting until after the divorce is final could prove to be disastrous to your credit score and your ability to secure favorable financing terms or financing at all for a future home purchase or other large financial transactions.  Remember, a divorce itself does not affect your credit score but events throughout the process often do.

In the unfortunate event you or someone you know finds themselves facing divorce, or if you have questions regarding divorce and your credit score, give me a call at (210)-EMPOWER. You can also hire a CDFA® to help you. If you’d like to learn more about what a CDFA® is, read my first article.

 

Chris Powers, CDFA®, CFP®

CERTIFIED DIVORCE FINANCIAL ANALYST