What can you do to protect your credit if you are going through a divorce?
Your credit may be in jeopardy when you and your spouse split up. In Arizona, community property rules officially end the “community” you share with your spouse when one of you is served with a divorce petition. That’s when your jointly held assets inside the “community” is considered split in half. Any income or property that you earn or obtain after that point is all yours. Alas, any joint debts, which is anything titled in both of your names like property or credit cards, will still be your joint responsibility.
Unfortunately, when emotions are high, people can be unpredictable. In one situation, a woman found out that her future ex had trashed her credit while the divorce was ongoing.
Her husband had said he would pay their credit cards but failed to do so, even though it was promised in the court documents. The bad news is that it didn’t remove the responsibility of the former wife whose name was still on the debt.
Whether the husband failed to make payments was on purpose, or financial failure, the unpaid debts were piling up against the wife just when she needed to build her own financial profile. Her suffering credit score dinged her ability to get new credit cards, and put a dark cloud over her ability to buy a car or new house with financing. Even her insurance company and utility company could see the bad credit score, and charged her as if she were a bad risk.
The bad credit score can even be seen by potential landlords who may decide someone is not worthy of snagging that great new apartment.
But there are ways to protect yourself during a divorce with some of these smart moves:
Build A Post-Divorce Budget
Track all of your income and expenses first before taking on any new purchase that depends on credit. It’s not easy going from a two-income household to a single income, and some women may be reentering the work force after a divorce. You’ll need to decide where to live on what you can afford, and whether you’ll qualify for spousal support: whether you’re a man or woman. You may be living on a “beans and rice” budget for a while, but remember that it won’t be forever.
Do A Deep Dive Into Your Financial History
It’s time to take a good hard look at your finances. If you’ve been married a long time, you may have forgotten about retirement accounts, old credit cards that are unused but still open, and that old hospital bill balance that you thought was long ago paid. Start by getting copies of your old tax returns and printing out a copy of your credit report. That can tell you a lot about where you’re at. Also check your credit card statements and bank statements for unfamiliar payments like streaming video subscriptions or apps that you no longer use. It might be time to take a break from all the extras until you get back on your feet.
If you see that you’ve got individual accounts in your name, it means you alone will be responsible for the debt, unless you live in a community property state like Arizona. In Arizona, any debts acquired while you were married are considered jointly owned. Also, look for any accounts listing an authorized user, which means the account is held by one person alone, but with another person who has rights to use the card, but are not responsible for the balance. Don’t forget to check on, and change, any medical accounts that might still have both of your names on the account, allowing one or the other to run up a bill that you might both be responsible for even after a divorce.
Delete Authorized Users
It’s going to take time, but you’ll need to review every credit card that lists your ex as an authorized user, which means your spouse is not responsible for repaying any debts incurred, but is able to charge on the account. Luckily, it’s easy to call your credit card provider and have the authorized user removed from your credit card.
You’ll also want to remove your name as an authorized user on any accounts naming your ex as the individual responsible. You should be able to contact the card provider and have your name removed – even if your ex has refused or forgotten to do it. Experts advise that you can dispute any inclusion of your name on your ex’s credit cards with a credit reporting agency, if the card issuer doesn’t allow it.
Close Joint Accounts
Face it, it may take some time, but it has to be done. Just having the divorce decree doesn’t untangle accounts that may tie you to your ex financially. For instance, you may allow your ex to keep the house after you move out, but your name will still be on the mortgage unless your ex refinances as the sole owner and person responsible for making payments. Make sure your divorce decree specifies a time frame for the home to be refinanced.In another example, you can transfer the balance of a jointly held card to one credit card in one spouse’s name alone, before closing the jointly held account. If one of you keeps a car that was jointly held and is jointly financed, you’ll want to refinance the car as well. Or sell it, and buy a new car in your name alone. If your ex keeps the car and the loan was held in the name of husband and wife, then a missed payment by one party can hurt the other’s credit. You’ll want to be notified in advance if a payment by your ex is going to be missed so you have the option of making the payment to avoid dinging your credit.
Track Your Joint Accounts Moving Forward
Download copies of your joint account statements every month, even if the other party is responsible for making those payments. You’ll want to confirm payments are being made. Then, plan on getting your credit report every few months to keep an eye on your credit and financial picture during and after the divorce, until you’re sure your financial lives have been adequately severed.
You can get a free credit report from each of the major credit reporting firms (Transunion, Experian and Equifax) every 12 months by going to AnnualCreditReport.com.
Contact your attorney right away if your ex isn’t making payments as agreed on your accounts. The court can find your spouse responsible for legal fees and expenses if a creditor demands payment from you for your ex’s spending.
By taking these steps, you’ll eventually untangle any joint finances, close unpaid debts, and begin your financial life with a clean slate.