Divorce has never been an easy process—the emotional strain that comes with ending a marriage can have a substantial impact on many aspects of your life, including your living situation, financial affairs, and—if you're a parent—your children.
You may be beginning to wonder what a divorce implies for your credit in the midst of all of this. Whereas a divorce does not directly impact your credit score, how you and your ex-spouse handle your finances after the relationship breakdown can have an indirect impact on your credit.
What happens to your credit after a divorce?
Changing your marital status has no impact on your financial score. However, the substantial financial changes that accompany a divorce may lead to a change in your credit score. There are a few things you ought to be aware of when it comes to what will happen to your credit after a divorce, whether that's because a generally lower income results in overlooked bill payments or just because you rack up debt once petitions are completed.
Joint accounts remain on your credit reports.
If you already have joint credit accounts with your ex-spouse, people will not be instantly divided because of your divorce. And you and your ex-spouse are still obligated to pay back the debt, as the account will continue to appear on each of the credit reports.
You may have to deal with one or more of the following types of joint accounts:
Joint mortgages: Among the most difficult transactions to manage is a mortgage. If the partner who is preserving the residence can qualify for a mortgage as an individual, one alternative is to remortgage the mortgage into their name. If neither of you can afford the mortgage on your own, you may be forced to sell the house and share the proceeds.
Credit card debt: It is strongly advised that you end up settling all joint credit card debt before finalising your divorce. This could be accomplished by either paying off the joint bank accounts with each other or dividing the debt and transmitting the funds to new credit cards in each of your names.
If both you and your partner have a joint car loan, some of the best options are to refinance the line of credit into the title of the spouse who plans to keep the car. This way, the spouse who isn't continuing to keep the car won't be impacted by financial accounts.
Divorce decrees won’t void lender contracts.
Through your divorce, the court can issue a divorce decree that stipulates how your marital property and loans will be divided between you and your spouse. It specifies who is willing to take responsibility for which liabilities, as well as any debts that may continue to be shared. The only problem is that lenders aren't required to follow divorce decrees when it comes to debt collection.
This implies that even though a judge orders you to pay off a joint account, your borrowing is still at risk. If your former fails to pay or pays late, the negative news will appear not just on their credit report, but also on anyone else's.