Yesterday I wrote a blog on an issue that can have a major impact on your credit and future purchasing power, “bankruptcy”. This blog is on another issue that has an equal if not more impact on your credit, purchasing power, as well as your life.
When a relationship is ended by divorce, the lives of those involved are changed forever. Divorce occurs because of conflict. The conflict can come in many different ways, but when dissected in its simplest form, there is always some kind of conflict involved. Conflict causes people to react in different ways, and unfortunately most of those ways tend to have hurtful results. Often the striking out manifests itself in a financial way, and as a result an impact on the credit of those involved.
Because of this the is an immediate need to protect your credit during divorce, because it is very likely that during this time, and even after the divorce that bills will go unpaid, and credit cards maxed out. Depending upon how finances were structured, one or both spouses can have a negative impact on their credit. This however, does not have to happen if one, or both take steps to protect themselves from the negative behavior of the other.
The first thing that someone going through a divorce should do is to get a copy of their Credit Report, and it should be a Tri-Merge report, meaning that it contains all three major reporting agencies, Equifax, Experian, and TransUnion, and go through it very carefully. The report is going to identify each account and who is responsible for it. The accounts that need to be addressed immediately are the ones that are joint accounts and accounts that you are an authorized user on, or the other spouse is an authorized user on. Once those accounts are identified:
- Immediately freeze the accounts that are joint accounts, so that the other spouse cannot further increase the balances.
- Remove the other spouse from your account if they are an authorized user on it, for the same reason.
- Remove yourself from their account if you are the authorized user on it.
- As an extra safety measure close your accounts that the other spouse is a join or authorized user on, and transfer the balance to an account that is just in your name.
But there will be accounts that you can’t do that two such as a mortgage or car loan. In that case you have two options, sell the asset or refinance it into the name of the one that is going to keep it.
There is a misconception that if a spouse is ordered by the court in a divorce decree to pay a debt that you are protected. The fact is that a divorce decree does not override any agreement you have with a creditor. So if the spouse that is ordered to pay the debt does not, your credit will be equally be impacted. The only safe guard that can be taken in this situation is to not just have the court order the other spouse to pay the debt, but to further issue you a “Hold Harmless”. This is still not an automatic guarantee, but it carries a lot more weight if the other spouse defaults.
As I stated in the beginning of this blog, when a relationship is ended by divorce, the lives of those involved are changed forever. But by following the steps that I have stated here, at least the impact on your credit can be minimized. My advice is don’t get divorce and then you don’t have to deal with any of this, but if you do then you need protect your credit during divorce.
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