If you search for online articles about divorce and finances, you could spend the rest of your life reading through the results and still wouldn't have enough time to read them all. Besides children, finances and property are the most significant and essential issues in a divorce. Many people have devoted vast amounts of time and energy to writing about this subject for a good reason. You are reading yet another one of those blog posts right now.
However, the question remains: to what extent will your divorce impact your finances- specifically your credit score? People can write blog post after blog post and article after article because no one answer is correct. With all that information out in the open to review, there is no wonder why many people still have so many questions about finances and divorce. Where do you even begin to learn what is correct and not?
In today's blog post from the Law Office of Bryan Fagan, PLLC, I am going to write about the subject of the impact of divorce on your credit score. While it is not as if the divorce itself will show up on your credit score, many issues related to divorce will impact your credit and your credit score specifically.
Financial trouble can be the result of divorce.
It doesn't matter if you have kids or don't have kids. It doesn't matter if you are a man or a woman. Divorce can lead to rough financial times if you are not careful or set up well for the end of your marriage. Have you considered the fact that, even though your current financial state may not be all that strong, having only one income rather than two can be a huge transition to have to sort through? Your spouse's income will leave the house after your divorce, and you will quickly have to adapt to that. Attorney's fees, missed time from work to attend court dates, and mediation can only increase the likelihood of this potential problem.
When we talk about your credit score, we are considered debts- loans you have taken out, credit cards you have opened up, and even your house's mortgage. Those creditors don't care if you are going through a difficult divorce. The interest is piling up on those loans throughout your divorce. You may have even had to take out a loan to pay for your attorney. If you miss payments on these bills due to you going through a divorce, then your credit score will begin to take a slide reasonably quickly.
Be aware of any accounts that you co-own with your spouse.
Do you and your spouse own any credit accounts in tandem with your spouse? What about your mortgage? Or a Home Equity Line of Credit (HELOC)? If so, then you and your spouse need to be on the same page during your divorce as far as which one of you will be paying this loan and how. This is a big reason why most people going through a divorce will negotiate for temporary orders that dictate which spouse will pay what bill. Doing so will avoid miscommunication on the subject of bills.
Difficulties associated with credit and your spouse do not stop even after your divorce.
Remember that your credit concerns will not necessarily come to a screeching halt just because your divorce has been finalized. Consider that no matter what your Final Decree of Divorce has to say, you and your spouse still own those credit accounts together unless you can get either your name or your spouse's off the account. Sometimes all it takes is sending in a copy of your Final Decree of Divorce, but often this will not matter. For example, if you took out a home loan to purchase a residence with your spouse, the mortgage company does not care about your divorce and how it divided up the debtor's property. All the creditor cares about is that your contract bears the name of you and your spouse.
In the context of your home, you and your spouse can agree whereby you are paid an equity stake in the home in exchange for deeding your share in the home to your spouse. The specific process is not something I will get into in this setting, but I understand that most creditors do not care that you have a divorce decree that divides up debt in a certain way. Also, consider that you and your spouse can divide debt and still be hurt due to your ex-spouse not paying the debt as agreed. Often vengeful or spiteful spouses will behave in this manner.
How to be defensive about your credit after a divorce
If your goal is to maintain a good credit score, you need to minimize your total amount of debt while maximizing the length of time that you have been diligent and consistent in making timely payments on the debt that you do have. The credit score is the be-all, end-all of financial success for many people. If you are one of those people, here is what you can do to increase the chances that your divorce will not be a death knell for your strong credit score.
First off, do not continue your bad habits after a divorce. If your household income has been able to overshadow lousy spending habits to this point, then do not let that problem persist after your divorce. This is especially important because you now will have less income coming in to service the debt that you do have.
For example, you may not be able to buy a house immediately. You are buying a house while in debt is begging for trouble to come your way. If you can no longer afford to make the payments on your vehicle, it may be time to sell it and to take out a small loan from your local credit union to make up the difference. Pay off that loan and buy a cheap, used vehicle with a small portion of that loan. You may not look good riding around in it, but at least you will not be in debt.
Before your divorce is finalized, print out a copy of your credit report and take a look at it. Suppose there are any debts you are not familiar with, call the credit bureau and inquire about them. They may not be there by mistake, as your spouse may have opened up a line of credit or taken out a loan in your name without your permission. The time to address these debts is before you sign your final orders- not afterward.
Consider that debt is not a means to build financial stability.
If you have not figured it out yet, debt should not be your go-to resource for accumulating wealth and financial success. Ask super-successful financial people, and I don't know that you would ever hear that they got there because of the easy credit that they had access to. If anything, debt has likely held the person back from building wealth even quicker than they did.
Your credit score is not a signal to anyone how financially stable you are. On the contrary, it simply tells people how substantial a relationship you have to debt. If you take out big loans but pay them off on time, you will have a strong credit score, but your path to wealth and financial success will become stunted. Consider revising your approach to debt after your divorce so that eventually, your credit score becomes nothing more than a number in your past.
Questions on debt, property, and divorce? Contact the Law Office of Bryan Fagan, PLLC
If you have any questions about the subject matter that we discussed today, please do not hesitate to contact the Law Office of Bryan Fagan, PLLC. We offer free of charge consultations six days a week with one of our licensed family law attorneys.