A good divorce lawyer warns their client to "Beware of a scorned spouse who shares credit." Maybe not all attorneys take the step to warn their clients, but they should. A spouse's credit is in dangerous territory when they are divorcing.
People can be unpredictable during emotional times. It's not unheard of for a soon-to-be ex-husband or wife to ruin their spouse's credit during a divorce, especially when emotions are raw. For instance, a spouse can agree to pay certain credit card accounts, but they never do.
The worst part about credit sabotage is it often comes when a client needs to establish their own financial identity. Bad credit can make it difficult to get good rates on mortgages, auto loans, and credit cards. Further, landlords, insurance companies and utilities rely on FICO scores to establish premiums and security deposits.
You're in a bad position if you let your spouse have control over your credit; here are ways to protect your credit during a divorce:
1. Develop a post-divorce budget.
Don't agree to handle more financial obligations that you can afford. Your credit could suffer for various reasons; for example, if you have to turn to credit cards, or if you miss payments.
Before you sign on the dotted line, develop a budget keeping in mind that you're going from a dual-income household to a single-income one. After factoring in housing costs, auto and health insurance, and auto loans, look at where you can cut back on luxuries, such as cable, dining out, or premium cell phone plans.
2. Pull your credit report.
If you've been married for 15 or 30 years, you may not remember all of the accounts that you share with your spouse, such as the Sears credit card you opened when you bought your refrigerator ten years ago.
In community property states such as California, any debts incurred during the marriage are jointly owned. So, it's a good idea to have you and your spouse pull your credit reports so you know exactly what you're liable for.
3. Remove your spouse as an authorized user.
To prevent your spouse from incurring new debt in your name, remove him or her as an authorized user from all of your accounts. Similarly, have your name removed as an authorized user on any of your spouse's accounts since they can still be factored in on your credit score.
4. Separate joint accounts.
A divorce decree doesn't change the contract you have with a lender. If possible, pay off any joint accounts and close them before the divorce. If that's impractical, try turning joint accounts into individual ones.
5. Pay off debt before the divorce is final.
If possible, pay off all credit card debt before the divorce is final. This way, you are entering into the next chapter of your life free of debt and you won't have to worry about your spouse's actions lowering your credit score.
Contact us to work with an Encino divorce lawyer who is board certified in family law!