Brooke Niemeyer Published July 05, 2016 Lifestyle and Budget Credit.com
Getting divorced can come with plenty of heartache, paperwork, and even financial burdens. But one of those struggles does not include a dip in your credit score just because you signed Divorce Opens a New Window. papers.
“The act of getting a divorce does not have a direct impact on your credit,” Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, said in an email.
But that doesn’t mean getting divorced can’t affect your credit in some way.
“The more shared debt there is in a marriage, the greater the potential for some problems to arise if the relationship ends in a divorce,” McClary said.
So, the legal act of getting a divorce may not directly affect your credit, but what comes after may cause your credit to take a hit, depending on how your shared finances are dealt with.
What’s in Your Divorce Decree?
When a couple separates, the court will divide the financial responsibilities (including debts) in a divorce decree.
“Should the court rule that one party is responsible for repayment of the debt, it may not resolve all of the issues that could cause collateral damage on the other person’s credit report,” McClary said. “The divorce decree will not alter the original loan or credit card agreement, so any missed payments will hurt both people equally.”
“If you are ordered to pay child support and fail to do so, a judgment could be entered against you listing the amount you owe,” John C. Heath, credit expert and attorney with Lexington Law, a Credit.com partner, said in an email. “These obligations can be reported on your credit report.”
It’s also important to note that separating shared accounts is not part of a divorce decree — this is your responsibility.
“A joint credit card Opens a New Window. agreement only recognizes an equal responsibility to repay an entire balance,” McClary said. “Such a contract does not determine how the responsibility is divided proportionally based on how much each person is charging. That is a matter to be decided between the two people who share the account.”
“You need to pay your financial obligations in a timely manner,” Heath said. “If you have joint obligations with your partner, you will want to make sure these are paid in a timely manner too.”
McClary said it helps to give each account holder “identical copies of all original loan documents and cardholder agreements” so everyone starts out on the same page.
“Monitor your account activity regularly and keep the lines of communication open,” McClary said. “The more transparency there is between account holders, the easier it is to avoid trouble before it becomes serious enough to cause credit damage.”
And Heath warned against taking your stress out on your credit cards.
“You do not want to let your credit accounts get away from you,” Heath said. “Divorce can be a very emotional process and some turn to ‘retail therapy’ to feel better.”
What to Do if Your Ex Doesn’t Do Their Part
“Be prepared to use emergency savings to maintain shared debt payments if the other person stops contributing their portion,” McClary advised.
And, if they don’t start paying what they’re supposed to, you aren’t entirely stuck.
“The only recourse [to missed payments] is that the person determined to be responsible for repayment by the court can be sued by the other if they fail to pay as agreed,” McClary said.
McClary also said it’s important to remember that this “can be a lengthy process that may not resolve all of the issues, especially the initial drop in the credit score and any resulting collateral damage.”
Monitoring Your Credit
McClary recommended informing the three major credit reporting agencies of your divorce and the debt repayment plans put into place. He said, “the more they know beforehand, the more they may be able to help find ways to help avoid financial pitfalls related to the divorce.”
In addition to this, it’s also important to keep an eye on your credit throughout the process. To do this, you can get your free annual credit reports Opens a New Window. from AnnualCreditReport.com as well as see two of your credit scores for free, updated monthly, on Credit.com Opens a New Window. .
If your credit does take a hit as a result of a divorce, you may still be able to improve your credit scores by disputing any errors on your credit reports Opens a New Window. , paying down high credit card balances and limiting new credit inquiries.