Going through a divorce can be one of the most stressful experiences in life, and if it happens to you, your credit score might be one of the last things on your mind. However, even during these difficult times, the world keeps spinning. And the fact is, divorce can greatly impact your finances and credit history. With close to 50% of all marriages ending in divorce, and divorce finalization taking close to 1 year to complete, protecting your credit along the way is critical to your financial future.
Assess Your Responsibilities
First, pull your credit report, and examine every financial obligation you and your spouse currently have, either jointly or solely. Assess which ones will be the responsibility of each spouse and create a budget accordingly.
Dissolve ALL Joint Accounts
One of the biggest misunderstandings about divorce is that, if the divorce decree declares certain accounts are the responsibility of your (soon to be) ex-spouse’s, this means you’re no longer liable. Courts can assign responsibility, but they cannot release liability. If you have a joint account such as a mortgage, HELOC or credit card, you’re both responsible by law. This is where so many recent divorcees get into financial trouble. They assume the other party is making the payments (as declared in the divorce decree), only to find out later they didn’t, filed bankruptcy, or had a foreclosure- all of which is now damaging your credit score.
Divide All Combined Cash
This includes all checking and savings accounts. When it comes to pensions and 401Ks, it’s best practice to seek the advice of a certified financial planner.
Document Everything and Store in a Safe Place
Divorces can get contentious, especially when lines get blurred. Keep all essential documentation in case you’ll need to prove anything in the long run.
After the Divorce is Final, Do the Following:
Check All 3 Credit Reports
Ensure everything is reporting accurately- your name change, new address, etc. You’ll also want to confirm all of the previous joint accounts have been closed and are no longer accessible by your spouse. Also, be aware of any new credit lines your spouse may have opened in your name without your knowledge. If you notice any inaccuracies, quickly file a dispute with each bureau, so they can quickly update and correct your credit file.
Notify Creditors of the Divorce
Contact each creditor on your credit report and alert them of any changes to your accounts, such as name changes, address changes and dissolution of any joint statuses. Confirm your spouse no longer has access to any of your accounts.
This is one that typically goes under the radar, but after a divorce, changing your passwords is critical to protect from potential fraudulent use by your ex-spouse. This includes passwords on your checking and savings accounts, credit cards, and even your cell phone. Start fresh and change them all.
Protect Your Identity
As a precautionary measure, it may be a good idea to purchase a one-year ID protection plan that will alert you of any suspicious credit activity. For a small fee, this will provide you with even greater peace of mind.
Going through a divorce can wreak havoc on your credit, but by taking the initiative to follow these tips, you should be able to get through it with very little credit damage.