Speaking with a friend this week, she shared some difficult news with me. She is currently going through a divorce and has understandably been concerned with the future of her finances. I decided to look into this topic on her behalf as well as to help share some relevant information with others who are going through this similar experience.
As I’ve said before, it’s important to understand how the credit history of your partner impacts you. However, if you’re splitting up this can be even more difficult. Being aware of potential effects that divorce has on credit is important, regardless of whether your divorce is amicable. The reality of the matter is that getting a divorce will have implications for you credit history.
Aside from the fact that you marriage is coming to end, your financial commitments are not and this can become complicated to manage following your split. As mentioned in a previous post of mine, having joint credit affect both partner’s credit score, as both of their names are on the account or loan. If one side has incurred debt – then this does reflects poorly on the other partner’s rating. Post-divorce, debt on either side impacts the other party, if any accounts and loans remained linked.
Next financial Steps?
Most people do not enter in marriages with the preconceived notion that this union is going to end in divorce. Also, as a couple we may accumulate debt & then it’s difficult to figure out how to split that if things end. However, if you have an idea that things may be headed in this direction, and in the case of a separation, for example – it never hurts to look into how divorce will affect your credit situation. Here are a list of steps you can follow to preserve your financial stability, leading into a divorce.
Knowing Your Responsibilities
First of all, if you are in the dark about which accounts your name is attached to, you will want to brush up on these details. Some may have even slipped your mind, as you spouse was more responsible at times for these accounts. Make yourself aware of all bank accounts, credit cards, mortgage loans, and even any of your household utility payments. Be sure you have noted all your financial responsibilities and then you will be able to manage each accordingly to maintain the status of your own credit.
Separating Your Joint Accounts & Assets
In this situation, there will be many decisions to made about how to divide these accounts and shared assets. Instead of dividing each account, down the middle, one by one, it may be better to make sure the correct person’s name is removed from certain accounts. If this is unclear, it might be more effective to cancel certain accounts. Sometimes, credit card companies will work with you to transfer half of the money to two separate accounts, and this is an avenue you can look as well.
It is vital that both spouses cancel the accounts together. These accounts or loans are most likely ones that were opened through your bank, and this can be your point of contact for the cancellation process. If you have a shared vehicle, there will also have to be a decision about who will take over the car loan as well as the actual ownership. Dividing up your home assets is another matter that will need to be resolved – and in some cases, selling the home and sharing the profit may be the end result.
After you have divided up your assets and addressed any debts, you may have some liquid assets remaining. Balancing out your shared cash assets can be done with the help of lawyers to ensure fairness and deter any conflict that may arise. This can help to ensure that a legal and ethical standard has been followed.
Checking Your Credit Score
While, this is an action you may be familiar with and something you have been doing all along, now that you are divorced and your credit is compromised – this is the time to re-check your credit score. This way you will see exactly how your divorce has influenced any credit history changes. This step also helps you to identify, if there are any loans that have been missed and still remain in both names. It is recommended that you check your credit score at least once per year – and this is a good method of staying on top of your finances on an on-going basis.
Whether your marriage has ended suddenly or you were unaware of what steps you should take to protect your credit – it is important to know how you can effectively manage your finances, now that your divorce has been finalized. I hope that any one who is going through this challenging time, can rest assured at least that it is possible to get their finances back on track, now that their lives have taken a new direction.