You may have been told that divorce doesn't impact your credit score.
But, you may have also heard horror stories about how divorce ruined some
people's credit. What gives?
By itself, divorce does not affect credit directly. Rather, it's the
financial issues involved with joint accounts that affects credit scores
during and after a divorce.
A joint account is where both spouses have their name on the credit card
or loan. Such accounts include auto loans, mortgages, and credit cards.
They also include accounts with cosigners and authorized users.
Since accounts are reported for each individual associated with an account,
all joint accounts must be dealt with before a divorce.
Many spouses are confused by the divorce decree. While a divorce decree
may specify who is responsible for an account opened during a marriage,
it does not break a contract with a lender.
If according to the divorce decree, your spouse is responsible for an auto
loan or joint account and they are unable to pay the bill or unwilling
to pay it, then any late payments will appear on both of your credit reports,
and it will negatively impact both of your credit scores.
Sometimes the missed payments don't occur until years after the divorce.
Still, they will be reported on the reports for all individuals associated
with the account.
Imagine that you and your spouse cosigned on an auto loan. In the divorce,
your spouse kept the vehicle and agreed to pay the payments. Two years
after the divorce was finalized, your ex is having money problems and
they decide not to pay the payments on the auto loan.
Next thing you know, you have a 30 day late on your credit and the financing
company is going after you for payment. Since your name is on the contract,
you are obligated to pay the loan, regardless of what the divorce decree says.
Vindictive Behavior Can Ruin a Spouse's Credit
Sometimes in acrimonious divorces, vindictive behavior on behalf of a bitter
spouse can have a very negative impact. Sadly, an angry spouse can make
large purchases on joint accounts or refuse to pay bills with the goal
of wrecking their spouse's credit.
What they often don't think about is how they're destroying their
own credit in the process.
Regardless of why you're divorcing, you're better off avoiding
the pitfalls of a vindictive split. It's best to work together to
pay off and close joint accounts, or if that's not possible, convert
them to individual accounts before the divorce is final.
Contact a Los Angeles divorce attorney from Claery & Green, LLP for a free case evaluation!