Protecting Your Credit During (and After) a Divorce
Divorce can lead to a slew of financial dilemmas, which can negatively affect your credit score. Closing joint accounts, making late payments or carrying a large sum of unpaid debt on a credit card, or having multiple derogatory marks (tax liens, bankruptcies, accounts going into collections) will cause your score to decrease. So, how do you prevent the number on your credit report from dropping during, and after, a divorce?
Obtain a copy of your credit report.
The very first thing you should do after the divorce process has begun is to order a copy of your credit report. Your credit report will show all open accounts, including personal and joint accounts, as well as auto and home loans. Review your credit report and determine which debt is yours and which is marital. By keeping a close eye on the accounts in which your soon-to-be ex-spouse has access to, you will be able to see if he or she stops paying bills or withdraws/transfers money from a joint checking or savings account. There are a variety of ways to gain access to your credit report, but consumers need to be wary of how they obtain it as some companies will charge you a fee, even though you are entitled to a free report every 12 months. Credit Karma is a great tool to not only receive a credit report, but also to monitor your credit on a consistent basis.
Close joint accounts.
Yes, closing credit accounts can make your credit score dip slightly, but not nearly as much if you and your spouse remain co-owners on the same account. Co-owners are both responsible for any debt associated with the account, so even if you and your ex are legally divorced, you can still be held liable for delinquencies. There is nothing stopping a creditor from coming after you for fees and unpaid debt, and as stated previously, carrying debt is a credit score lowering delinquency. Closing all joint accounts is one way to protect your credit, both now and in the future.
What should you do if a joint account cannot be closed? It’s simple: freeze it. Usually, joint accounts cannot be closed if there is an outstanding balance that won’t be paid off at the time of closing. When an account is frozen, the current balance will remain, but new charges and transactions will be declined. This prevents any new debt from being accrued. In some instances, one spouse will take advantage of a joint bank account and purchase expensive items or use money to take vacations, which can potentially mean that they are trying to hide or squander assets. Freezing joint accounts that can’t be closed will help to prevent that.
As always, if you suspect that your spouse is trying to hide his or her assets to lower their net worth, contact your attorney as soon as possible as a lower net worth can mean you receive a smaller settlement or receive less in spousal support.
Look towards the future.
It is important to think about your financial future during a divorce. Your attorney should be able to give you an idea of how much money you will receive in support from your former spouse, and by factoring in that figure along with your current salary and expenses (from your Statement of Net Worth), you should be able to come up with a budget. Stick to this budget and pay your bills on time. Doing so will help to improve your credit rating (if it declined due to divorce), or keep it steady.
Be wary of the dreaded “ B-word “.
No one ever begins a divorce proceeding with the intention of filing for bankruptcy. However, due to unforeseen legal costs from prolonged litigation or the distribution of marital debt , some parties will find it impossible to pay their bills and satisfy creditors. Declaring bankruptcy should be a last resort, and one should only proceed forward with it after exhausting all other options and avenues. Declaring bankruptcy has serious ramifications, like impacting your ex’s credit score and remaining on your credit report for ten years . It is recommended that you discuss your options with your divorce lawyer, as well as a bankruptcy attorney.
Financial woes are shared concern with most divorce clients. Either two income households are now becoming single income, or stay-at-home parents are now facing the reality that they have to support their children on a combination of alimony and child support. The fear of drowning in debt is a major reason why couple’s do not file for divorce. However, with the right representation, they can rest assured that they will be secure post-divorce. The law firm of Brian D. Perskin & Associates, P.C. has helped thousands of New York City families navigate the treacherous waters of divorce and legal separation, as well as child custody, visitation, and support matters. Contact the experienced and highly regarded attorneys at (718) 875-7584 or (646) 791-3228 to schedule your free consultation today!