For years, January has been unofficially dubbed “Divorce Month.” After toughing it out through the busy holiday season, many couples are facing what divorce would mean for them and their families.
Even the most amicable of divorces can be painful – not only emotionally, but financially as well. In addition to expensive legal costs, there can also be big hits to your credit score and credit report.
For example, even though debts can be split during divorce proceedings, any joint loans taken out during the marriage will still be in both names (unless the loans are refinanced by the responsible party), meaning that any late or missed payments by an ex may quickly tank the other party’s credit too – even if the courts didn’t assign the debt to them.
As divorcees no longer have access to a combined income with their spouse, many can also find themselves struggling to make ends meet, leading to further credit hits as their credit utilization increases and payments are postponed.
Don’t want this to happen to you?
Here are a few tips to help you prepare for and recover from divorce financially.
Get your financial documents in order
One of the first steps in protecting your finances throughout a divorce proceeding is making sure you have all of the facts straight. You’ll want to pull together documentation on all of your marital assets, including bank accounts, life insurance, real estate, and anything else you’ve purchased together. In addition, you’ll also want to obtain information on all of your joint and individual debts.
Once you’ve gathered this information, you’ll want to review it thoroughly. If you’re not 100 percent sure that you know everything about your spouse’s finances, then it’s time to find out – especially if your spouse is hiding funds that will affect the division of assets. A good place to start looking for hidden sources of income and other assets is reviewing the following documents:
- Past tax returns
- Canceled checks or brokerage accounts
- A list of account numbers from your bank
Begin separating your finances before the divorce proceedings
If possible, the sooner you can start separating your finances, the better – even if you’re still living together. You’ll want to begin the process of closing your joint account and opening new ones in your name only. Then, make sure to start using your new accounts. This will allow you to control and monitor your own spending, as well as limit your debt liability if your spouse tries to accumulate debt on your dime before the divorce is finalized.
Create a budget
In addition to the new emotional territory you’re going through, divorce is also going to bring you to uncharted financial territory as you adjust to single life. If you were a dual-income household, you’ll need to learn how to survive on one income. If you were previously a stay-at-home parent, you may have to re-enter the job market to make ends meet.
Take the time to brush up on your budgeting and money management skills to avoid unnecessary debt, and make sure to keep a long-term outlook. This will help you to overcome your short-term impulses (such as giving in to unfair divisions of assets to avoid conflict) in favor of long-term stability.
Know Your Options
Even the most prepared divorcees are likely going to face financial hardships during and after divorce proceedings. As you know all too well, life doesn’t always go as planned. At some point, you may find yourself struggling under the weight of your financial burdens, and late bill payment notices may start to pile up.
And even if you’re on time with all of your debts, your ex may fail to make on-time payments to debts that were assigned to them by the judge but are still in both of your names on the creditors’ records. Creditors will try to hold both parties responsible, leading to negative listings on your credit report as well.
This can quickly pull down your credit score, making it harder to set yourself up in your new life as you’re denied new credit cards, auto loans, apartment leases, and even employment opportunities. Fortunately, there are steps you can take to recover from the fallout.
If your credit report isn’t an accurate reflection of your creditworthiness after your divorce, you may want to consider credit repair. There are many resources online about how to do it yourself, and there are also credit repair companies that can do it for you if you don’t have the time or expertise to manage it on your own.
Whatever method you decide, the law gives you the right to dispute any inaccurate, unsubstantiated, or unfair items in your credit report.
There’s no sugarcoating it — divorce is tough. But if you take these steps to protect and rebuild your finances, you’ll be able to focus more on your recovery and less on financial stresses.
John Heath is the Directing Attorney of Lexington Law, a law firm providing credit repair services for consumers. Since 2004, Lexington Law has helped millions of consumers navigate credit report errors and fight for their right to a fair and accurate credit report.