A divorce would not directly hurt your credit score. That said, a divorce can set you up on a bumpy road which will eventually lead to a decrease in your credit score. Knowing how credit scores get calculated, the principle of a joint account, and how creditors treat divorce decrees will help you evaluate how the effects of a divorce can zap your credit score.
Upon completing the proceeding of divorce legally, the court issues you a divorce decree. This decree contains information about your case like spousal support, child support, custody, visitation, property division, and other information. The divorce decree is a legal document that will state the division of assets. Right? Yes!
It should be honored by your creditors. Right? Well, not really. Creditors do not honor divorce decrees, and this is where all the problems begin.
Courts routinely allocate responsibility for payment of marital debt between divorcing spouses as part of the division of the marital estate. Often time, we believe the court’s allocation of debt to one party relieves the other party of any potential liability for that debt. Unfortunately, the final judgment of divorce does not bind nonparties, and creditors may continue to seek payment from any party that previously incurred or agreed to be responsible for the debt. Unless the parties pay off and close all joint marital accounts, divorcing spouses stay financially “married” concerning any joint accounts that remain open at the time of the divorce. This means the credit history of any accounts opened in both spouses’ names will follow both. Short of paying off and closing the accounts, the only way to terminate a joint liability of a spouse is through the agreement of the creditor.
With all this going on, one of the first things to clear off the table in a divorce is any joint account. Let say you have a joint account where your ex was responsible for making payments. If for some reason he or she makes a late payment or at worse, fails to make this payment, that’s on both of you irrespective of the divorce. Another case would be your ex exceeding the utilization of the joint credit account. Even though the debt is paid appropriately, a high credit utilization rate on a joint credit card could hurt the credit scores of both you and your ex. I know the effect goes both ways, but by right it should not.
Joint credit accounts should never be kept after a divorce. After a divorce, all joint credit cards should be closed. In addition, you should also ensure that you remove your ex name as an authorized user in a card that is bonded to your name only.
Also, try to do the following:
- Discharge joint debt using existing or new individual debt. Because joint debt poses such a great risk of credit damage to spouses after divorce, a smart strategy is to discharge all joint debt. Creditors rarely release a single party from liability for the outstanding joint debt. Consequently, best practice dictates that the parties pay off any outstanding joint debt. We recommend that you contact a professional for this.
- If for some reason, you still need the joint credit account. We advise you to monitor open it closely. Almost all creditors allow consumers to monitor their accounts remotely. Take advantage of this. Frequent observation of your account increases your chance of avoiding damages to your credit even before it happens
- With the joint credit account open, you need some form of protection. Contact your lawyer on how protection in the divorce settlement can be negotiated.
