Paycheck Chronicles

Protecting Your Credit During Divorce


If you've found yourself in a dissolving marriage, there are usually a lot of things to manage.  It can be hard to focus on every little detail when you are overwhelmed with all the emotional, legal, and personal decisions that need to be made.  Make sure to take some time to make sure that your finances are in order and you are protecting your credit.  Your separation agreement or divorce decree may address financial issues, but it is up to you to ensure that things are handled properly.  Even a friendly divorce can cause financial problems if you don't understand all the potential ramifications.

Basically, you are trying to ensure that all joint credit accounts are separated. The usual suspects are home mortgages, car loans, and credit cards.

Home Mortgages

If you own a home, and have a mortgage, this is the largest single financial issue in your divorce.  You must take steps to protect your credit AND your equity in the home.  From a financial perspective, the best thing to do is to sell the house before you divorce, and include any profits in the divorce settlement.  However, what is best financially isn't always the best for your family, and it isn't always possible.

If you don't want to sell the house outright, then you should try to sell your half of the house to your spouse before the divorce is final.  This will require that he or she obtain a new mortgage.  This can be challenging because divorce is a financially difficult time.  It's also challenging because often the person who is trying to remain in the house is also the primary caregiver for children, and hasn't necessary been working full-time.

If the staying spouse can't qualify for a loan on their own, and you don't want to (or can't) sell, be sure to keep your name on the title to the house.  This is the only way to protect your equity in the house, and it is essential if you are still liable for the mortgage.  Work out details such as when the house will be sold, and include them in your divorce agreement.  Also, be sure that the lender know all your contact information and specify that you are to be informed in the event of any late payments.  This is asking a lot, and you can't count on the mortgage servicer to comply.  Because of the way mortgage servicing software is created, there is usually only one primary address field.  Any additional information will end up being in a note somewhere and may only be seen if someone is looking for it specifically.  Therefore, ensure that you have online account access to keep any eye on the mortgage payments.

Auto Loans

Auto loans have the same general characteristics as home mortgages.  Thankfully, they are usually easier to resolve because of the smaller dollar amounts.

In most cases, selling the vehicle is not required.  If you have the ability to pay the loan in full before the divorce, this is the optimal solution.  If that is not possible, then refinance the car into the name of the spouse who will retain the vehicle.  If your car loan is more than the value of the car, then find a way to pay the difference.  This will make the divorce arrangements much simpler.

If the keeping spouse can't qualify for a refinanced loan, then consider selling the car.  If you absolutely have to keep both names on the loan, be sure to keep both names on the title and keep an eye on the loan.  Again, online account access makes this easy.

Credit Cards

Credit cards are easier and harder at the same time.  It is important to remember that closed accounts aren't truly closed until they have no remaining balance.  Ideally, all credit cards should be paid in full before the divorce.  If this is not possible, have each party open their own, individual credit card accounts and transfer the agreed-upon amounts to their new credit accounts.  This will leave no balance on the old accounts and they can be completely closed.  Be sure to keep close tabs on your credit report to make sure you haven't forgotten any dormant accounts, and continue watching your credit more carefully for several years after the divorce is final.

Ending a marriage is complicated and there are a lot of details to track.  Be sure that managing your credit is high on your "to do" list.

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