Getting divorced can unleash some of the harshest financial circumstances on individuals.
A divorce is not easy to begin with. But even looking into the financial consequences as a separate category, there are several subcategories to break it down into. One of them is your credit score.
In this article, we will look into what the landscape could look like for your credit after divorce. Let’s dive into:
- How divorce affects credit
- Whether spouses share debt after divorce
- Fixing credit scores
- Debt separation
Will divorce hurt my credit?
The action of getting a divorce, on its own, does not harm your credit score.
However, the financial implications of divorce do affect credit scores far more often than not.
What does this mean?
A hit to your credit score can come about in several ways. Most of them are connected to:
- The financial “side effects” of divorce
- The separation of previously joint financial responsibilities
When it comes to the second point, you can avoid the worst of it with some investigating. That way you can avoid being left on the hook for responsibilities you were unaware of.
Joint accounts
First of all, if you have/had joint accounts with your spouse, a few things can happen.
If one of you fails to make the payments that you did before, the other can be negatively affected.
By the same token, if you and your spouse ever shared debts, not handling them after the divorce can harm your credit.
In general, joint debts remain the responsibility of both parties following a divorce. This will normally end once the debts are paid off. This often stands even when a divorce settlement assigns responsibility for a joint debt to just one party.
If the party held responsible fails to meet their responsibilities, both parties’ credit can be harmed.
This issue could potentially be handled through a pre-divorce settlement arrangement.
Either the debts must be paid off in full, or the debts can be refinanced into two individual accounts. This leaves both parties detached from previously joint responsibilities.
If it is at all possible to handle these issues amicably, then that would be the best solution. Otherwise, both parties will likely be harmed.
Does your spouse’s debt become yours after divorce?
Generally, your spouse’s individual debts will not be made your responsibility automatically after divorce. For that to be the case, you two would have to meet some specific criteria, such as living in a community property state.
The list of states covers much of the US Southwest and a few others. In these states, former spouses are considered joint owners of most debts and assets acquired during the marriage.
In other states, even after divorce, debts simply remain under the same name they were taken under. That means your debts are just yours, and the same goes for your former spouse.
In either of the above cases, certain joint debts will still need to be paid off by one or both parties. Divorce settlements may include the specifics.
The most common areas of concern are mortgages and car loans.
This may all seem complicated. In most cases, it is at least a little bit complicated. But that’s why it’s crucial to carefully review which debts you may remain responsible for paying.
Understanding the responsibilities is important so that you both don’t suffer for the other’s confusion or incompetence.
If your former spouse has some debt placed under their responsibility which you were once both held accountable for, it makes sense to check its activity from time to time.
Missed payments may still affect you both.
How can I fix my credit after divorce?
The good news is that all new financial decisions you make are now your responsibility alone. You do not need to consider someone else when taking new loans.
Of course, if your credit score suffered due to a marriage and subsequent divorce, you may want to take a few steps to correct the damage.
First, review your credit report to assess the damage. You can also look for any mistakes that are negatively impacting your score.
The rest of the process is much like any regular process of improving your credit. We’ve touched on the topic before.
The most important step is just good old-fashioned fiscal responsibility.
Try your best to not take on financial responsibilities you can’t comfortably handle. Pay your debts on time and as agreed.
Keep your credit utilization low and be patient if your credit score has been tanked as a result of your divorce.
How do I separate my credit after divorce?
This part of credit after divorce is a complicated process in some cases. But just a few steps may yield significant improvements.
First, close any joint accounts you can.
This is the most straightforward way to divorce your financial destiny from that of your divorced spouse. After that, replace them with individual accounts wherever it makes sense to.
Where it’s not a simple matter of closing the account, perhaps consider making an arrangement with your former spouse.
For debts one person doesn’t have any stake in anymore, consider refinancing. Refinancing a joint credit account enables you both to put the debt in just one person’s name.
Conclusions
Depending on the personal nature of your divorce, much of this information may make perfect sense. In other cases, it’s all easier said than done.
Regardless, when faced with several bad options and even one “less bad” option, the latter is still preferable.
Divorce affects two parties financially, often in a way that is far from equal. But by understanding the implications on your credit score, you may be better able to weather the storm.
If you understand these factors, you will at least not be overly surprised by future credit reports. You’re then left enabled to make a more practical plan for recovery.
Updated from Feb 23, 2023
