Divorce is a significant life event that results in many emotional and financial changes. One aspect that might take time to before it becomes apparent is divorce’s impact on credit. If you’re in the process of divorcing your spouse, you should know that untangling joint accounts, handling debts and adjusting to a new financial reality can affect your credit score.
Understanding how divorce can influence your credit and taking proactive steps to mitigate negative impacts is essential.
How divorce can affect your credit
Divorce can lead to complications with joint debts and individual financial responsibilities. Even if a divorce decree assigns responsibility for a debt to one party, creditors may still consider both individuals liable until the debt is paid or refinanced. Additionally, the emotional turmoil and organizational challenges often accompany a divorce can lead to missed payments on debts, quickly impacting both parties’ credit scores.
Strategies to minimize the impact on your credit
Closing or separating (separating is ideal as closing accounts affects one’s credit) joint accounts is essential in protecting your credit during a divorce. By closing the joint accounts or converting them to individual accounts, you minimize the risk of one party’s actions affecting the other’s credit. Transparent communication with your ex-spouse regarding joint debts and responsibilities can prevent misunderstandings and ensure that both parties fulfill their obligations.
Creating a clear financial agreement that outlines who is responsible for what debts in a formal divorce settlement is also advisable. While it may not absolve you of legal responsibility with creditors, it can provide legal options if the other party fails to pay.
Regular monitoring of your credit report during and after the divorce process will help you spot any inaccuracies or unexpected changes and allow you to address them promptly. If you notice that your ex isn’t paying debts from the marriage as stated in the divorce documents, you may choose to take legal action to try to get them to pay.