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How to Protect Your Credit Following a Divorce

Credit After Divorce

Credit After Divorce

Divorce is not just painful; it’s a complex balancing act of your emotions and the divvying up of your assets in a way that is least disruptive to your daily life. After all, you still have responsibilities to worry about such as work and time with your children. With everything going on it’s easy to let your credit slip under the rug.

In the midst of sorting out who gets what, it’s important to spend some time thinking about your credit health. The dissolution of your marriage doesn’t negate any agreements with creditors on your joint accounts. Any unfilled obligations are going to hurt you in the long run. In fact, Experian reveals that 34% of divorcees say that their divorce left them in financial ruin.

So how do you protect your finances and handle your credit during and after a divorce?

Open Your Own Checking Account

Although it might not seem likely, there is always a chance your spouse will do something that will ultimately ruin your financial standing; such as going on a spending spree or draining a joint checking account. If you don’t already have one, open a private checking account for your paycheck deposits. If you have any automatic payments for the bills and credit cards in your name, make sure those are transferred over as well. You don’t want to get hit with any late payment fees or reports on your credit score when you close your joint account.

Manage & Separate Joint Accounts

After you’ve made sure that the money you have coming in is protected, you’ll want to handle your joint accounts. Make a list of all the accounts you and your spouse hold together, including credit agreements, and separate them as best you can. This can involve paying off debts entirely, separating balances owed to new cards, or placing a freeze on all credit accounts to prevent charges in the future. However, make sure to speak with your attorney before freezing any jointly held debt, there could be ramifications if your spouse uses it for daily living expenses such as gas, bills, groceries, etc.

While it might be tempting to let your debt slide because it’s the “other person’s responsibility”, you’ll want to do your best to keep all joint payments current. On the other hand, you’ll also want to avoid taking on debt that might otherwise not be your responsibility. Keep in mind that that division of debt is typically a part of the divorce process, similar to the separation of assets, and should be handled with caution until the debt has been officially negotiated.

Refinance Wherever Possible

Other than managing debt, one of the biggest hurdles during divorce hearings and negotiations surrounds the separation of major assets, such as vehicles and mortgages. While the divorce settlement may award a vehicle or home to one spouse, this alone does not remove you from the responsibility of repayment if your spouse falls behind.

For this reason, it is crucial to have any and all joint loans refinanced to remove your name in addition to reassigning any debt to your ex so you cannot be hit with any financial trouble down the line. Although this may be challenging, the potential problems associated with the liability of unresolved debt can be two-fold.

Monitor Your Credit

Unfortunately, divorces are often messy, leaving both parties with resentment and frustration in the end. With this in mind, it is important to think about any potential damage a revengeful or upset spouse could do to hurt your credit. This could go as far as draining your accounts or stealing your identity to open and use accounts in your name, both of which could have a significant impact on your credit.

After your divorce, take the time to guard yourself against any possible crimes of identity theft. Sign up for a program that monitors your credit and alerts you to signs of suspicious activity. To ensure your security, lookout for signs that a new account has opened, request that all your account numbers are changed, and change your banking passwords and pins. If you notice or suspect any signs of theft, contact all three credit bureaus immediately. For a free credit consultation, contact Credit Absolute today!

Include Provisions in Your Settlement

When your settlement agreement is drafted, ensure that your attorney has included provisions for debt responsibility in addition to the divvying of assets. For example, if your spouse is awarded the house, you can include a provision that states if the home is not refinanced within two years, it is to be sold on the market. Conditions such as these not only give your spouse plenty of time to remove you from the loan but a fallback if they are not able to do so. Finally, use your divorce decree as a means of protecting yourself against any potential damage to your credit that could occur after the divorce is finalized.

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