Divorce & Credit
Follow these steps to protect your credit and money if a divorce is in your future.
If a divorce is impending, it’s time to change your attitude and outlook on your credit and finances. Soon you will be on your own, usually with no one else there to share in the expenses. That means it’s up to you to organize your financial world from bank accounts to credit lines, insurance, loans and tax information.
To help you through this new and sometimes frightening experience, Consolidated Credit has put together these steps to ease the stress and make the transition as painless as possible.
Step 1. Open your own checking and savings account
If you’re just deciding on a divorce or are going through the process, strange things start to happen with money. Spouses tend to write bad checks, overspend and generally abuse their finances, especially if the separation turns nasty. By quietly opening your own accounts you can secretly start saving money for post divorce responsibilities. This gives you a head start on paying off credit card debt and other expenses you owe according to the divorce decree.
Step 2. Close joint accounts
Hopefully your spouse won’t have a problem with this because it can benefit everyone involved. The reason is, both of you are responsible for joint accounts. For example, if you keep your name on a credit card account and your soon-to-be ex-spouse goes on a spending spree with the card, you’re also responsible for paying back that money and vice-versa. Even if your divorce is settled and the decree states that your spouse must pay off that account but fails to do so, your creditor can hold you responsible for the debt.
Ways to avoid these situations vary, but one method is to close a joint account and transfer the balance to another account that’s in one spouse’s name. Of course this all has to be agreed upon as the debt is divided up and you must contact your creditor and ask to be released from the account. Also, ask the creditor to remove anyone that has “authorization” to use the card if it becomes your responsibility to pay off the debt.
If there’s no way to separate the accounts, specify in the divorce decree that your spouse must notify you if a monthly payment is going to be missed. This way you can hopefully make the payment and prevent damage done to your credit.
Things change if you live in a community property state. In community property states, such as California and Arizona, any debts acquired during the marriage and within those states are considered jointly owned. Check the link above for further details.
Step 3. Order your credit report
As a matter of fact, order all three credit reports from Equifax, Experian and TransUnion for free once a year at Annual Credit Report.com. Take a close look at your report to make sure there are no errors. You can find more information about identifying errors in your credit reports and the process to get them corrected in our comprehensive Credit Repair section.
Remember, you are still responsible for all joint accounts and if your ex-spouse missed payments lenders will record the negative information on your report. As a result, your credit score can be damaged, hindering you from opening new individual accounts once the divorce is over.
Step 4. Build a new budget
Now that you don’t have a spouse chipping in to pay the monthly bills, it’s time to adjust your budget to fit your new lifestyle. First evaluate your income sources and decide if you need to get a second job or cut expenses.
If your budget isn’t balanced because of the lost income, cutting expenses can help you get your financial world in order. You can save money by moving to a smaller home or trading in your car for a less expensive one. You can cut expenses by getting rid of cable or adjusting your food budget because you have less people in the house or you can eliminate discretionary expenses simply by not going out to dinner, or cancelling a gym membership.
Step 5. Establish your own credit
In order to establish your own credit, you must first pay off all debt you owe according to the divorce decree. That means making timely payments each month and not missing payments. If you can qualify for a credit card apply for a low limit card in your name and start slowly. Only charge what you need. Remember, every late payment ends up on your credit report as negative information.
If you don’t qualify for a regular card, get a secured credit card. You need to pay for the amount of your credit limit by putting money into an account. For example, if you put up $300, your credit limit will be $300. By charging items and paying on time you’ll be proving that you are a dependable credit manager. This method takes time and patience because creditors are a wary bunch, but it’s an excellent way to re-launch your credit-building pursuits.
Don’t wait to ask for help
If you are falling hopelessly in debt after a divorce, want advice on better money management skills or just need help getting your finances in order call Consolidated Credit at 1-888-294-3130 or complete a request for a free Debt & Budget Analysis.