Maintaining Your Credit Status
Divorce can be one of the most devastating events in one’s life. But beyond the heartache, there is another pitfall that can bring on huge headaches and threaten your reputation as a financially responsible adult. Your credit standing and identity confidentiality can be serious components of a divorce case.
Many people assume that divorce is primarily about division of property. However, when two individuals dissolve a marriage, there are usually shared debts and often mortgages and other loans in common which need to be carefully handled. We live in an era where credit card debt has been extended significantly and where identity theft is an ever-growing concern with devastating repercussions. In addition, sabotage, inaction, or threat of bankruptcy resulting from an ex-spouse’s behavior should be guarded against, as these can all negatively impact one’s credit rating and status.
You might be surprised to learn that credit reports aren’t as personal as we may think. Third parties can obtain our credit reports through court orders, for both consumer purposes and for investigative reasons. Our credit status not only directly influences our ability to proceed with major transactions, such as buying property, refinancing existing debt, and obtaining loans, but can also affect other areas of our lives that often undergo change following a divorce. Insurance companies use our credit reports to assist in evaluating our risk factors when obtaining automobile and health care insurance. Prospective employers and courts can also see bad credit ratings, potentially affecting your ability to find new employment or to seek custody of your children.
The reports should be scrutinized for any new or unknown assets or debts of which you might be unaware. Many people have difficulty understanding the terminology and ratings contained in a credit report – your attorney can assist you. Alert your creditors and credit reporting agencies with certified letters to notify them of the impending divorce and of any name or address changes to prevent identity theft. Joint accounts should be closed as soon as possible. Determine the credit accounts for which you are responsible (i.e., in your name), particularly looking for any late payments, collections, or liens – these should be paid off first. The first 18 to 24 months after a divorce are crucial to re-establishing credit in your own name. After paying off liens or collections, credit cards or unsecured loans with the highest interest rates – not the highest balance – should be transferred to new credit cards (in your name) with a lower fee. It is not advisable to keep credit cards with an annual fee.
Be aware that if you live in a joint property state such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, both you and the divorcing spouse will be held liable for any and all charges made during the marriage, regardless of whether those charges are on a joint card or individual card. Additionally, the debts and payment histories will be seen on both parties’ credit reports.
There are other steps to consider taking:
• Mortgages and home loans may require a refinancing to remove yourself or soon-to-be-ex-spouse from liability.
• Change the beneficiary on your insurance.
• Check your retirement savings and insurance to see if you’ll be covered after the divorce.
• Keep financial records for at least two years, until things have been finalized.
If you decide to maintain joint accounts during your separation or divorce, be vigilant about continuing your regular payments so that your credit record won’t suffer. As long as there is an outstanding balance on a joint account, you and your spouse are both legally responsible for repaying it. Continue to obtain your credit reports or consider signing up for a credit monitoring service in order to ensure that your accounts stay the same. If identity theft is suspected, file a police report immediately, as there may not be recourse if you wait too long.
It is extremely important for you to educate yourself and to be proactive in preventing credit damage, or even identity theft. This will lay the foundation for a more secure new future for yourself and those dependent upon you.