Divorce is difficult enough on its own. With so many other concerns hanging over your head, there's no need to add credit troubles to the mix. While divorce won't directly impact your credit in any way, you risk serious ramifications if you and your spouse don't discuss how to handle the debt properly after the separation. With that in mind, it's best to develop a plan now and leave yourself one less thing to worry about during the annulment process.
Even after you've legally separated from your former spouse, there may be lingering ties that bind you together. Chief among them are shared credit cards, mortgages, home loans and other financial accounts. Because your ex-spouse's actions on any shared accounts – such as failing to make payments or running up mountains of debt – will continue to impact your individual credit as well, your first step should be to contact each financial institution and ask for the accounts to be closed. For added security, it's best to do this both over the phone and in writing. Joint credit cards can be re-issued to you or your spouse individually, and balances can be transferred to other accounts for those you wish to close altogether.
Mortgages and substantial personal loans are less straightforward, but you'll still have a number of options. While laws vary from state to state, mortgages are often awarded to the spouse who has also taken custody of the children. Failing that, the mortgage may go to whoever has a greater income or is in better shape financially. However, you can also opt to avoid this process altogether by agreeing to sell the home, pay off the mortgage and split any remaining money. Similarly, large joint installment loans such as auto loans can be refinanced, or the car can be sold and the loan paid off in its entirety. For accounts that can't be easily separated or refinanced, it's often best to try working with your former spouse to pay off the debt as quickly as possible.
Once you've put together a sensible approach to managing your shared accounts and debts, it's time to turn your focus toward strengthening your individual finances . One of the best ways to do this is by using a credit card for small, routine expenses such as gas and groceries. Pay the bill in full each month, and if you do carry any balance forward, make sure that it never exceeds about 30 percent of your credit limit. Over time, this will help to rebuild your credit and establish a history of responsible use.
If your credit history is such that a traditional card is unobtainable, you may wish to consider a secured card. Secured cards are made available to those with poor credit or no credit history in return for a specified minimum up-front deposit, making them an excellent tool for rebuilding credit after a separation. Also keep in mind that, if you plan to go back to your maiden name after the annulment, you should do so before applying for any credit or other accounts. This will ensure that all of your finances are in the appropriate name and save you unnecessary hassle later on.
After you've gone through the effort to untangle your finances and reestablish your own credit history, the hard work is done. However, that doesn't mean you can become complacent. You should make a habit of reviewing your financial information regularly, including bank statements, credit reports and credit scores. This will allow you to track your progress, but it's also important to keep an eye out for any signs of fraud. A divorce can be a contentious and emotionally charged process, and unfortunately, spouses don't always separate on good terms. Because ex-spouses generally have access to their former partner's social security number, financial records and other sensitive data, identity theft is not an uncommon occurrence. No matter how unlikely it may seem, it's best to be vigilant and monitor your records just in case.
Finally, take some time to consider your financial situation and develop a budget that works for you. It's likely that your income level and bank account have changed, perhaps significantly, and it may take some time to adjust. While living expenses such as rent or mortgage, utility bills and car insurance must come first, try to prioritize your expenses in such a way that you can pay off any remaining debts as quickly as possible. This may require making hard choices, such as moving to more affordable housing or giving up luxury expenses, but eliminating debt and restoring your personal credit is the best way to ensure that your finances are healthy and sustainable.
By sticking to the approach above and exercising sound judgment, you can put yourself on the road to peace of mind and much stronger post-divorce financial future.
______________________________________Beth Kotz is a business writer and contributor to Credit.com. She has also been featured as a writer and editor for numerous blogs in the energy, entertainment, and home verticals. Back To Top
Certified Divorce Financial Analyst
Business Valuators / CPAs