6 Ways To Protect Your Credit in a Divorce
Your credit score and ability to obtain credit can have a significant impact on your life post divorce. It can impact your ability to qualify for a new credit card, car loan or home loan, or your ability to refinance an existing home loan or obtain a line of credit.
- Run your credit report during the divorce process and examine every credit card item or loan item on your report. There may be a credit card out there that you were unaware of and that credit card and balance owed needs to be addressed in the divorce process. Close all joint credit cards and joint credit accounts before the divorce is final. Address any credit accounts that cannot be closed immediately in the divorce decree, i.e. a car loan or home mortgage. Insert provisions requiring the spouse taking the asset to either refinance or sell it if he or she is unable to refinance the note.
- Any late payments on any credit account in which you are listed as a borrower or authorized user will affect your credit score. If your spouse keeps the marital residence and you remain on the note, a late payment by your spouse of a mortgage payment will negatively affect your credit. Any account in which you are only an authorized user can affect your credit. If your spouse makes a late payment on a credit card in which you are an authorized user, your credit score will be negatively impacted. Remove yourself from any and all accounts in which you are an authorized user and confirm with a letter from the lender or financial institution. Then run your credit report again to make sure it was removed.
- If you are the non-moneyed spouse, apply for a credit card in your name only prior to finalizing the divorce so that you can use your spouse’s income. If you do not have income or enough income post divorce, you may have difficulty qualifying for a credit card.
- Credit card companies look to the owner of the debt for payment. Credit card companies do not look at your divorce decree. Even if your spouse is ordered to pay your credit card debt in a divorce decree, the credit card company will still go after you for payment. Therefore, if the credit card debt is in your name, structure a settlement where the debt is paid off in full at the time of the divorce or you receive other assets to compensate you for taking on that debt. Do not rely on your spouse to pay a credit card debt in your name only. Another option is to have an enforceable secured contractual payment provision in your decree that obligates your spouse to pay you the credit card payoff payments. Then you pay the credit card company directly.
- Examine your future financial goals with a qualified divorce financial planner and your attorney. If you want to purchase a home or car or refinance a mortgage, it may be in your best interest to structure your divorce settlement so that you have a continuing income stream from your former spouse in the form of contractual alimony for a period of time. Alimony counts as income in qualifying for credit or a loan.
- Consult with a qualified divorce financial planner to determine your future cash flow needs. Due to high interest rates on credit cards, it may be in your best interest to sell assets or structure a settlement to pay off credit card debt instead of making monthly payments of mostly interest.
For more information about protecting your credit, our Dallas, Plano and Austin Family Law attorneys are here to help you.
This post was written by P. Lindley Bain.
“I recognize the importance of managing the financial and emotional costs of contested family matters. I work hard to achieve the best possible outcomes for my clients, while minimizing the toll it takes on their day to day lives.” — Lindley Bain