For many people, divorce is a difficult and painful experience to navigate.
The process of dissolving a once-loving marriage, making new living arrangements and separating joint finances can be complicated. If you're a parent, dealing with custody issues can be even more of a challenge.
In the midst of the chaos of a divorce, people often tend to overlook their credit. Unfortunately, that's a big mistake.
When you fail to protect your credit during a divorce, your credit scores might suffer. And, if your divorce does damage your credit, those issues could haunt you for many years to come.
Let's start with the good news. Divorce doesn't automatically trash your credit scores.
In fact, you don't have to worry about divorce itself hurting your credit at all. Your marital status isn't reflected on your credit reports and it has zero direct influence over your scores.
Still, it's no secret that divorce and credit problems commonly go hand in hand. Here are two reasons why your credit scores might drop during a divorce:
1. Creditors don't honor divorce decrees.
Disentangling joint finances and accounts is a complicated part of divorce. If your divorce is a messy one, separating joint accounts can become an absolute nightmare.
During your divorce, the court will issue a ruling known as the divorce decree. Your divorce decree details the division of your marital assets and debts, including which spouse is responsible for paying each creditor.
If you have a joint car loan, for example, your divorce decree will say who keeps the vehicle and who has to keep up with the payments on the loan.
There's just one problem. Creditors and debt collectors don't honor divorce decrees. If a judge orders your ex to pay a joint credit obligation, but he or she fails to do so, your personal credit could suffer.
2. Joint accounts stay on your credit reports.
Whenever you initially open a joint credit obligation with your spouse, the account may be added to both of your credit reports with Equifax, TransUnion and Experian (depending upon the lender's policy).
Divorce doesn't dissolve the joint accounts you opened with your ex nor does it remove them from your credit reports. Your lender will still expect both of you to pay back the money you borrowed, plus interest, as you initially agreed. The account will also remain on your credit reports, regardless of who is responsible for it in your divorce decree.
Here's why this can be a problem. If your ex is responsible for making payments on a joint account and pays late, the late payment will show up on your credit reports and could damage your credit. If a jaded ex-spouse decides to make a bunch of charges on a joint credit card account, you'll still be responsible for paying the debt. In fact, a high credit utilization rate on a joint credit card could hurt the credit scores of both you and your ex, even if all payments are kept on time.
The easiest way to separate joint accounts is to cooperate with your ex and find a solution that protects each of your credit reports. Of course, depending upon whether your separation was amicable, this may or may not be a realistic expectation.
