How Will Divorce Affect My Credit?
Divorce can be a traumatic experience, and your credit is probably far from your mind during this time. If you don't properly address your finances during and after a divorce, however, you could end up with more headaches from a problem-filled credit history.
Just because you may be divorced and each spouse has been assigned certain financial responsibilities does not mean your assets are covered or protected. Creditors do not care what your marital status is when trying to collect owed funds.
First, you should determine if your accounts have individual or joint status. Individual accounts give the owner sole responsibility for any activity or debt incurred while it is open. Often times, a spouse is listed as an authorized user under these accounts, and even if the account shows on the authorized user's credit report, the account holder is liable for it.
Joint accounts consider the income, financial assets, and credit history of both spouses when opened. Creditors will report this information to the credit bureaus under both spouse's name. As a result, both parties are responsible for the debt of joint accounts regardless of marital status or whom the court assigned to cover the debt.
After you have gone through your accounts, you have a few options in how to handle each type.
Credit cards
Remove your spouse as an authorized user from all individual account credit cards in your name. Also have yourself removed from your spouse's individual account. Some credit card companies will allow you to remove yourself, while others will require the account holder to remove authorized users.
It is best to close all joint accounts. If you have debt on a credit card, companies typically will not let you close the card. You can either transfer all of the debt to another, individual account, or transfer it to two separate accounts. This will allow you and your spouse to finish paying of the debt without affecting each other. At the very minimum, freeze the account so no further charges can be made until the card is paid off.
Joint accounts do not automatically close if you divorce, and companies won't usually change a joint account to an individual one. You will have to reapply for an individual account. Either spouse can usually request to close a joint account.
Mortgages and loans
With mortgages, the cleanest option is to sell the house and divide the profit. If you or your spouse insists on keeping it, however, refinance the mortgage and/or home equity loan to remove the other spouse's name. This will protect the other from a possible future foreclosure.
Refinance any other loan to remove you or your spouse's name.