Divorce and Credit Scores

How to Protect Your Credit Scores During a Divorce

Divorce and Credit Scores…

One of our credit repair clients recently went thru a divorce and it ruined her credit. During the divorce proceedings, she and her ex-husband agreed that he would continue to pay the Citi Bank card held in her name and also pay all of the remaining debts held jointly.

They had been married for 5 years and incurred about $30,000 in marital debt. After the divorce, she thought everything was fine until she started receiving threatening notices from debt collection companies.

Apparently, her ex-husband paid all of the debts with the exception of the $25,000 Citi Bank Card account that was held solely in her name. Even though there was a divorce judgment that ordered him to pay the debt, he was now unemployed and unable to make the payments.

If you’re going thru a divorce, or just went thru a divorce, you already know about the financial hardship a divorce can cause. After attorney fees, child support, alimony, and separate living expenses there’s probably very little money left to go around.

Dealing with a divorce is bad enough, but dealing with a divorce and credit scores that limit your financial options, is even worse.

So, even though a divorce can be an emotional nightmare, it is critical that you take some steps to protect your credit scores:

1. If possible, sell the house and get as much equity as possible to pay off any remaining debt held in your name individually or jointly. Try to avoid a divorce settlement agreement that requires your debt to be paid off over time.

2. As soon as you are aware of the divorce proceedings or anticipate a divorce, close any joint credit accounts immediately. This will prevent the debt from increasing even more during the divorce proceedings.

3. If your ex-spouse is in agreement, transfer any joint account balances to a credit account held in your ex-spouse’s name individually. Try to get as much of the debt out of your name as possible.

4. Monitor your credit reports and credit scores monthly. Make sure that no additional debt obligations are incurred in your name.

5. Immediately notify all creditors of your divorce. This will put your creditors on notice that you are not responsible for any of the debts held in your spouse’s name individually.

Surprisingly, your creditors will not care that the divorce court may have ordered your ex-spouse to pay the debts held jointly or in your name individually. If you are listed as a signer on the account, they will pursue you for collection.

So your goal is to pay off all the debts held in your name, before the divorce proceedings are complete, or get the debts out of your name. This includes utility bills, car notes, credit cards, or any other debt obligations.

Hind sight is 20/20; but if you have already completed your divorce and your ex-spouse is responsible for paying debts that are adversely affecting your credit, you need to evaluate your total financial situation and consider a debt solution that works for you.

I know it may be emotionally unpleasant to work out a debt solution for debts your ex-spouse may be obligated to pay, but in the long run it’s probably better to protect your credit than to continue to fight an unwinnable moral battle.

There are many divorce strategies you may need to be aware of. Click here to download a Divorce Guide that does a good job of explaining the divorce process and how to avoid some of the more common mistakes.

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