How To Keep Divorce From Ruining Your Credit
Although the marriage may be coming to a conclusion as a result of divorce, the same cannot be said for any and all debts and/or credit obligations accumulated during that marriage. While there are many uncertainties connected with the entire divorce process, one element can be counted on to remain constant, the monthly bills.
From the moment the decision to separate is made, it is very important to understand the effects this action will have on your debts and credit rating.A person's credit history is very important as it is a major means by which a particular creditor can judge whether or not you are a good risk for a loan or credit line. Your history reflects what you have done with previous loans/credit lines and your willingness to repay borrowed monies. This factor and your current income are what determine what is known as your "credit worthiness". It is your credit worthiness that will ultimately decide whether or not you will be granted the loan or line of credit you apply for.
Avoiding Surprise Debt
Both spouses are expected to meet any financial obligations taken on during a marriage; neither spouse is responsible for the other's debts once the divorce is finalized. However, during the period known as separation, things can tend to be a bit more complicated. As a rule of thumb, debts incurred after the separation date are the responsibility of the party that generated such. However, the one notable exception would be those debts created by what are known as "family necessities". In other words, one spouse may run up a tab for things such as food, clothing, shelter, or medical care and may rightfully expect the other spouse to assume a portion of that obligation. Children by nature tend to create many of these family necessities. In the eyes of a court of law, it is these types of obligations that are of paramount importance.
It is also important to be aware that the general rule pertaining to separation period debt is not necessarily written in stone. It is possible that a creditor will attempt to collect from one spouse an outstanding bill accumulated by the other during the separation period. Also, derogatory credit marks accumulated by one spouse may be transferred to the other's credit standing, oftentimes without that spouse's knowledge. For this reason, it is wise to consider closing of all credit cards, etc., just after the decision to separate is reached.
Keeping a Joint Account for Shared Expenses
In some cases, it might be necessary to keep a joint line of credit to pay for such things as child expenses or property maintenance during the separation. It is strongly suggested there be a written agreement outlining exactly what the account is to be used for and what amount each spouse is expected to contribute towards that account. It is even possible to arrange things so that neither spouse can withdraw/spend any of the monies in that account without the other's written consent (for example, a check that requires two signatures to be valid). For the most part, however, it is recommended that no new joint accounts be opened.
During the separation period, in anticipation of the final divorce, it is also a good idea to obtain a copy of your individual credit report. Your individual credit report will be able to give you an accurate list of all your current outstanding debts as well as previous credit history. Should you find that errors have been made, there are avenues available through which your credit standing can be corrected. This information will also be made available via the
Preventing Bad Credit
Upon reaching the decision to separate, spouses should determine how joint debts will be handled. Then letters can be written to the creditors asking that the liabilities be transferred solely to the name of the party that agreed to accept them. In some cases, creditors will not agree to this as they will continue to hold each spouse liable until such time as the debt is paid in full. However, in the event this should be the case, this is still a way to protect yourself from any future debt incurred by your spouse. It is also a way in which you can start and/or strengthen your own individual credit standing.
Not only can divorce lead to emotional strain, it can also cause all sorts of financial problems. All those shared accounts and co-signed loans that once seemed so romantic are now the cause of major issues. The following important tips can help avoid financial damages due to a divorce.Creditors aren't interested in how property and bills are divided during divorce. If you have debt in joint accounts with your spouse, you are both responsible for paying it back.
Creditors are not legally bound to abide by your final decree of divorce. A judge's order does not override what you owe your creditors and most attorneys don't alert their clients to the potential for problems if one spouse does not follow the court order. Below are some tips that will help keep divorce from ruining your credit.
Allow: One month to make these changes
CLOSE JOINT ACCOUNT:
Before you separate when possible, close all joint credit accounts. Closing them before divorce proceedings will keep an angry spouse from using the account and running up charges that you may later be held responsible for.
GO FROM JOINT ACCOUNTS TO SEPARATE OR INDIVIDUAL ACCOUNTS:
You should seriously consider turning all credit cards, gas cards and any retail accounts into individual accounts. Doing this will mean not having to re-establish credit in your own name after the divorce because you will already have it. It can also cut down on the amount of friction once the divorce process starts.
SETTLE WITH CREDITORS:
Offer to close the accounts by paying a smaller amount than is owed. If this is done, get a letter from the creditor that the account has been paid in full and a written promise that they will not file anything derogatory about the account to the credit reporting agencies.
If you are not able to pay off or come to a settlement agreement regarding the balance owed this would be your best move. This will keep you from being able to use the account but will also protect you in the long run. Once the divorce is final, the balance owed on the account can be transferred to the party the court holds responsible for the debt. If the responsible party does not pay the debt then you don't have to worry about it affecting your credit score.
CONTACT YOUR CREDITORS:
Alert them to the fact that you are going through a divorce. If there is a change of address, make sure they know it so that you will continue to receive bills from all joint accounts.
MAKE SURE ALL BILLS ARE BEING PAID:
Divorce proceedings can take months and all it takes is one late payment to hurt your credit. Even if you have to pay the minimum on accounts that you know will ultimately be your spouses responsibility it will be worth it.
If you have additional questions on what you should and shouldn't do when it comes to your credit give me a call today.