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Protecting Your Credit During Divorce

It is often said of divorce - it is an emotional roller coaster. It doesn’t matter whether it is an amicable parting of ways or an all-out war, divorce will always be difficult. It can also be financially debilitating.

Unfortunately, if you are a woman undergoing divorce, historically, divorce takes a larger toll on you than it does on a man.

According to an updated re-issue of “The Divorce Revolution: The Unexpected Social and Economic Consequences for Women and Children in America”, a woman’s standard of living suffers a 27% downgrade post-divorce. On the other hand, a man experiences a 10% upgrade.

​How do you protect yourself from holding the losing end of the stick during and post-divorce? It is crucial to avoid mistakes that can have a huge impact on your financial future.

One of the first important steps you can take is protecting your credit. Below are tips to help protect your credit so you not only survive divorce but more importantly, financially thrive long after the papers have been signed and finalized.

Tip #1 - Check Your Credit Report

Despite its impact on one’s finances, very few people request their credit report each year. At a minimum, people should check their report once every 12 months.

Here’s a hint - if it has been more than 12 months since you have received a report from any of the three credit reporting bureaus - Equifax, Experian, and TransUnion, you can request a copy for free.

When going through a divorce, it becomes doubly important to check your credit report. Along with understanding your monthly expenses and savings, securing access to all bank and investment accounts and documents, and securing copies of your latest tax returns, checking on your credit report allows you to have a clear picture of your finances.

This allows you to make informed financial decisions that will have a large impact on your future.

Why is the credit report an important document?

Companies and banks use the information contained in your credit report to determine how they will work with you. Here are just some of the ways the information is used:

  • To determine your eligibility for loans, whether it’s for purchasing a new car, a home or even appliances

  • Insurance companies look into your report to determine what rates they can apply to your plan

  • Potential employers use it as a basis when making a decision to hire

  • Landlords run credit checks on potential tenants to determine if they will allow you to rent

How does a credit report help you?

  • It is a step towards rebuilding and maintaining good credit. Having an idea of where you stand helps you take steps to ensure your credit is in good shape.

For example, if there are negative marks due to nonpayment by your ex on debts that you jointly held with him, you can contact the creditor reporting the information to see what you can do to correct the situation.

You may arrange to pay for half of the principle with no penalties or interest. And ask for them to strike the bad rating from your file.

If you have credit problems that you are working on correcting, your credit report will help you monitor your progress.

Managing your credit, along with keeping track of your spending and putting aside savings are essential to keeping your finances strong.

  • It is a step towards correcting any inaccurate information. Normally, the report is pretty accurate. However, there may be inaccuracies that you may wish to rectify. Regularly keeping tabs on your credit report allows you to do this.

Tip #2 - Remove Your Spouse As An Authorized User

Another tip in protecting your credit is to remove your spouse’s authorization. Some of your accounts may not necessarily be a joint account, but if you’ve allowed your spouse as an authorized user, we strongly recommend revoking this authorization.

Since it is your account, your spouse is not legally responsible for paying the expenses that he charged on the account. You might find yourself paying for credit card debts that he has incurred.

On the flip side, it’s also advisable to have your name removed as an authorized user in your ex-spouse’s accounts.

Tip #3 - Separate Your Accounts

An important step in protecting your credit is to separate your accounts. If you have joint accounts, this should be done as soon as possible. For joint debts, you need the consent of the lender to absolve your liability for a debt.

If you cannot do this, you also have the option of using joint funds to pay joint debts prior to the divorce so you don’t have to worry about them after.

Another option is to decide who will be responsible for specific joint credit card debts and transferring these to a card that is either in your name or in your spouse’s name (but not both).

You may also want to refinance a jointly owned home or vehicle in the name of the spouse who will be keeping them.

Tip #4 - Take Note of the Debts Your Ex is Responsible For

This applies to joint accounts that you have chosen to keep with your ex. Your effort on keeping up with the payments for the debts you are responsible for may be useless if your ex-spouse does not pay his share of the debts on time, or worse defaults on payments.

If this happens, your credit score will likewise be negatively affected.

Therefore, it is important to keep an eye on the debts that you jointly share with your ex-spouse. In cases like these, it is important to coordinate with the lender so you may work on a workable payment plan that keeps your credit score healthy.

The best way to do this is to get monthly statements for any accounts with outstanding balances. This way you are able to keep track of all accounts and make sure that timely payments are made both by you and your ex-spouse.

Timely payments ensure that your credit scores stay positive and healthy.

Tip #5 - Notify Creditors of Your Divorce

This applies to any joint accounts that you have closed. You need a certified letter to notify credit card companies, banks, and other lenders about your divorce. This prevents any debts from accumulating after the date of the written letter.

In an acrimonious divorce, it may be necessary to request to put accounts on inactive status to avoid additional charges. Once balances are paid in full, the accounts may be closed completely.

Final Tip - Live Within Your Means

My final advice in protecting your credit? Keep within a budget that ensures that you are able to provide for your needs and most importantly, pay bills on time to keep your credit score healthy.

How stable your financial future will be is highly impacted by how well you do in protecting your credit during and after divorce.

Take Control of Your Future

When you consider divorce, or if you know someone who is contemplating divorce, one of the biggest realities for those in the divorce process is the financial settlement and financial analysis post-divorce. Get the assistance of Kimberly Surber, a Certified Divorce Financial Analyst®.

Kimberly provides step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, Kimberly will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.

This information is not intended to be a substitute for seeking legal advice from an attorney. For legal or tax advice please seek the services of a qualified attorney and/or qualified tax professional.

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