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Getting divorced can be very expensive - emotionally and financially.
You have already paid thousands of dollars to a certified divorce financial analyst, lawyer, and mediator to negotiate a fair divorce settlement and avoid making mistakes during the process. While you are relying upon your financial and legal team to get the best financial outcome, the following questions are always going to bother you -
Divorce doesn't hurt your credit score unless you and your spouse have been missing payments on your credit cards and loans due to the money dispute. It may also depend on your state's family law. If you live in a community property state where all assets are owned, and debts are owed equally unless dictated by a prenup. Even with a prenup, it may get messier. But filing for a divorce will not hurt your credit. But if you and your ex have been missing payments or were late, then it will lower credit scores for both.
Your marital status as "Divorced" doesn't show up on your credit report. When lenders run a credit check they can see only your account and payments history. They will not decline your credit just because you are divorced. However, if you do not have enough income or have a history of late or missed payments then you can be denied credit.
A divorce decree by itself doesn't remove your obligation to the banks and lenders. While legally you may be separate unless you go through the process of financial separation you will not be off the hook. Banks and lenders do not recognize divorce decrees. Your contract with a lender is not automatically voided. Even after the divorce decree, if your spouse misses any payments, your credit score can take a hit. All the joint accounts will still appear on your credit report until they closed.
For example, let's say that you and your spouse purchased a house together. You agreed that your spouse will get possession of the house. But your spouse never bought out your share to have 100% ownership of the property. The original mortgage is still outstanding. Even though your spouse had agreed to make all the payments, a few years down the road they start missing them or are late. Those late or missed payments will start showing up on your credit report.
It is very critical to separate your finances during the divorce so that your financial lives are completely disentangled.
A divorce means a fresh start - and it also means a fresh start financially. A good credit standing will be required to get credit cards and loans. Else the credit terms may not be that friendly resulting in much higher payments. Slight negligence can force you to rebuild your credit with credit cards that carry high fees and rates or require deposits as security before you can start borrowing. There are several steps you can take to manage debt and protect your credit during the divorce.
Having a complete list of all the credit cards and loans that are jointly or separately owned by you and your spouse is very important during the divorce proceedings. While the one-time run at the beginning may give you the picture, your spouse may decide to borrow more during the divorce leaving you equally responsible. They may do it because they need to pay for lawyers or personal expenses, or they are just angry at you for getting divorced. This way they think that they can teach you a lesson. While they may not care about their creditworthiness it can definitely harm yours. They may also decide to share your private data such as date of birth, social security number, and address publically so that hackers and fraudsters can get credit on your name thus leaving you in a financial mess.
Therefore, you should run a credit check almost every month during and after the divorce to make sure that no new accounts have been opened under your name. Every credit report is a complete list of open and closed credit accounts. You can go to AnnualCreditReport.com to get a free credit report every year from all three credit scoring agencies - Equifax, Experian, and Transunion. In addition to that several free and paid apps can help you obtain a free credit score. Your bank or credit union may also offer you a credit score for free.
All three credit agencies allow consumers to freeze their credit for free. A credit freeze restricts access to your credit report. If a bank or a lender cannot access a credit report they cannot issue a new credit card or a loan under your name. A credit freeze can stay active forever. You can still apply for a job, rent an apartment or buy an insurance policy. When you need to apply for a new credit card or get a loan you can call the credit agencies to unfreeze your credit.
You can place a fraud alert by calling one of the three credit reporting agencies - Equifax, Experian, and Transunion and tell them that you suspect fraud. Once you place a fraud alert with one, others will be notified automatically. A fraud alert is put for free and lasts for one year. It can make it difficult for anyone to open a new credit card or loan account under your name.
If your identity already has been compromised by your ex then you can qualify for an extended fraud alert that can last for up to seven years.
Active duty service members can put an Active Duty Alert on their credit report that will need to be renewed every year. This way if you are on active duty and your spouse back home decides to separate, they cannot get a new credit card or loan with you as a joint account holder.
Both Active Duty and Extended fraud alerts can also remove you from unsolicited credit and insurance offers for 2 and 5 years respectively.
You can also call your bank and lenders and explain your intention to get a divorce. This way they will send you alerts if your ex decides to make big transactions on the credit card or borrow against a line of credit or get a new loan.
Having a roadmap to financial separation is the key to maintaining a good credit standing be financially successful. You can engage a Certified Divorce Financial Analyst or a Financial Mediator to work with you and your spouse to split your cash, checking and savings accounts, and debts. This can be even before filing for a divorce. Each spouse can enter an agreement that any loans they take after the date of separation while a divorce is in progress will be their sole responsibility. This agreement along with the credit freeze can help you protect your credit.
Both parties should close all the joint accounts and apply for separate ones. If there is a disagreement, you can speak to the bank and the lender and see how they can help with the separation. If you are the primary account holder and your spouse is the authorized user, you can remove them from the account. You should also remove your name from the accounts that your ex will continue to use.
A lender will not automatically remove the mortgage from your name because you have a divorce decree and your ex has possession of the property. You are still responsible for the payments, even if a judge has ordered your ex to make monthly payments.
However, this is not an ideal situation. It is not wise to hold a mortgage with your former spouse. It will show up on your credit report. If your ex fails to make a payment on time, your credit score will also take a hit. This negative incident can stay on your credit report for up to 7 years and hurt your chances to get a new credit or a loan.
There are a couple of steps that can be taken to remove your name from the mortgage.
Either way your name must be removed from the mortgage and the title of the property.
Couples rarely come out financially unscratched during a divorce. Most likely you will suffer one way or another and you may also take a hit on your credit score. Women in particular end up suffering because usually they have fewer financial resources than men. Below are some of the things you can do:
Warning: This post is neither financial, health, legal, or personal advice nor a substitute for the advice offered by a professional. These are serious matters, and the help of a professional is recommended as it can impact your future.