Credit Scores and Divorce

Usually when we think of property and support issues in divorce, we think about having a proper share of the marital estate and enough funds to support ourselves moving forward.  But we should also think about our credit scores, because it turns out they are connected to our ability to support ourselves after divorce and play a big role in how to divide property.

If you anticipate getting a divorce, you should run your credit report, which you can do through one of several free reporting services.  When you receive your report, check closely to see if you notice accounts you did not realize existed – perhaps ones your spouse may have established without your knowledge.  Also, read carefully what components have contributed to raise or lower your score.

When you have this baseline, you can make good decisions about how to handle property and support issues in your divorce.  For example, if you have filed your tax returns jointly, your income probably has been linked with your spouse for credit purposes, which means upon divorce the income drop will in the short term affect your credit score.  Also, the balances carried on accounts could become troublesome if you cannot make regular payments.  The best way to protect your credit score is to continue to make minimum payments and avoid delinquencies, which may require consulting with your spouse about who will be responsible for what accounts.  Obviously, your monthly income will determine your ability to make all of your payments, so that should help you do the math – do not take on more debt responsibility than you can afford.

What if as a couple you have more debt than you can handle as separate persons?  This actually happens more than you might expect.  In such situations, to protect your credit, it would be best to decide how to use some marital assets to cover debt rather than risk delinquency or, even worse, bankruptcy.  You might even want to consult with a financial advisor about different strategies of liquidation and how that may or may not be preferable to a reduced credit score.

Why is the credit score so important?  Moving forward, you will be solely responsible for purchases, and the ability to acquire credit at certain levels, particularly in terms of loans for real estate or cars, depends on a minimum credit score.  Indeed, refinancing the marital home may turn on your credit score – so that should factor into how you and your spouse divide the marital home (refinance versus sell).  Also, in order to move forward cleanly after divorce, you do not want your financial past haunting you.  Debts your spouse leaves unpaid but tied to your name will drag your rating down, so a separation agreement that takes payment of certain accounts in a timely fashion into consideration would be of great benefit.  Also, hold harmless agreements delivered to credit reporting agencies might offer some protection if the spouse in charge of a certain debt fails to follow through in payment.

It may seem strange that one reporting number could have such a profound effect on your future, but it is the reality, and your divorce planning should include all issues that impact your credit score to maximize your post-divorce future.

If you have additional questions about credit rating and divorce, contact us – we can help.