Credit Sesame discusses ways to protect your credit from divorce and accumulated joint debt.
Divorce is a complex process, and dealing with marital debt can add significant stress. Shared accounts and financial obligations can leave you worried about your credit score and future financial security. Here are seven approaches to help protect your credit. Remember, getting legal advice tailored to your specific situation is crucial.
Understanding marital debt and your credit
Joint vs. separate debts
Debts incurred during your marriage, regardless of whose name they’re under, are often considered joint debts. This includes mortgages, car loans, credit cards held jointly, and even personal loans taken out for household expenses. Debts incurred before the marriage or for one spouse’s sole benefit (for example, gambling debts) might be considered separate debts.
Impact of unpaid debt
If you are legally obligated to pay a portion of a joint debt and your ex-spouse defaults on their portion, it can negatively impact your credit score as well as theirs.
7 strategies to protect your credit
1. Consult an Attorney
An experienced divorce attorney can advise you on your rights and obligations under state law, represent you in court if necessary, and negotiate a fair settlement regarding debt division. Understanding your state’s approach to marital property division is essential. In community property states, all marital assets and debts are generally divided equally, regardless of who earned the money or incurred the debt. In equitable distribution states, the court divides assets and debts fairly, considering factors like income, earning capacity, and the length of the marriage. You can find more information on federal marriage and divorce laws, including links to resources on state-specific laws, on the U.S. Department of Justice website.
2. Consider closing joint accounts
This is a common approach. Ideally, with the help of a mediator, you can close joint accounts and transfer remaining balances to separate accounts in proportion to what the court might ultimately order. This prevents further debt accumulation on joint accounts.
3. Negotiate debt division
During mediation or attorney-led negotiations, a key issue is the fair division of debt. This might involve assigning specific debts to each spouse based on responsibility or income level, or selling jointly owned assets like a house to pay down debt.
4. Monitor your credit score
Be mindful of your credit score even after the divorce. The Fair Credit Reporting Act (FCRA) grants consumers the right to get free annual credit reports from each of the three major credit bureaus (Experian, Equifax and TransUnion) at AnnualCreditReport.com. You can learn more about the FCRA on the Federal Trade Commission (FTC) website. Alternatively you could sign up for a free credit monitoring service, which usually presents your credit information and credit score in a more user-friendly format.
5. Dispute errors on your credit report
If you notice any errors regarding debt allocation on your credit report after the divorce, be sure to dispute them with the credit bureaus following the guidelines outlined on the FTC website here [invalid URL removed].
6. Don’t take unilateral actions
While protecting yourself is important, resist taking unilateral actions like closing accounts without consulting your attorney. Legal recourse might be a more effective approach.
7. Bankruptcy as a last resort
Filing for bankruptcy should be a last resort due to its significant impact on your financial standing for years to come. Your attorney can advise you on the best course of action.
Protecting your credit during divorce is essential for your financial future. By understanding your rights, taking strategic steps, and seeking legal advice, you can minimize the negative impact of marital debt on your credit score.
If you found 7 ways to protect your credit from divorce useful, you may be interested in,
- Does marriage affect your credit?
- What happens when you dispute something on your credit reports?
- How to build credit
Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.
