What Happens to My Credit If I Get Divorced?

judgmentsAbout 50% of you who are reading this right now will get or have gotten divorced. That’s how the numbers play out. That’s the bad news. The good news is this…

Being divorced doesn’t deduct any points from your credit score or penalize your credit reports.  There’s nothing on your credit report that read, “This guy is now divorced.”

That certainly doesn’t mean your credit reports and credit scores are immune from the affects of a divorce, far from it. The impact your divorce has on your credit will depend the accounts with which you have joint responsibility, are a co-signer, and/or are an authorized user.

After the divorce papers have been signed and the financial responsibilities have been divided and agreed upon, this may not be the final chapter regarding these credit obligations.  The court may have determined who is responsible for paying the bills, but if the responsible party does not fulfill their obligations, the other party can also be impacted.

The court’s division of responsibilities does not override the agreement that was signed when the account was originally opened. For example, the court determined that one spouse is responsible for the mortgage payments, and that person is behind on payments, since both spouses’ names are on the mortgage as responsible for paying the mortgage, the mortgage lender holds both responsible.  In fact, this mortgage loan is also reported on both spouses’ credit reports and so is the late payment.

Joint Accounts

If you are in the process of filing for a divorce and have any joint accounts, the accounts should be paid off and cancelled prior to finalizing the divorce.  In a divorce, you can’t rely on the former spouse to pay the bill.  Any future negative behavior not only impacts their credit but also yours.  There is often resentment and you can’t predict what will happen next.

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By law, creditors can’t close joint accounts because of a divorce.  One spouse can request the lender to close the account, but payment of the balance has to be agreed upon.  Unfortunately, most creditors won’t remove the spouse from a joint account.  The lender likes to have two responsible for payment. The creditor usually closes the joint account and the spouse has to qualify for the new account based on their individual credit.   This could involve refinancing a car or mortgage and can be a major issue if the spouse hasn’t had credit in their name.

Co-sign

If one party is a co-signer on a loan, the lender won’t release that individual from the responsibility.  The only alternative is to pay if off or refinance.  Again the individual must be able to qualify for the loan.

Authorized user

If one spouse is just an authorized user on the account, the responsible party can remove them from the account.  If they don’t and the former spouse continues to use the card, the card owner is responsible for all charges, not the authorized user.

Divorce is not pleasant and financial obligations make it even worse.  When you get married, you don’t plan on it ending in divorce, but it makes things easier if you don’t have any shared accounts.  This may not be practical, especially if you need both incomes to qualify for a mortgage.  I’m all for maintaining credit independence even after you’re married.

JRU on 60 Mins SetCredit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, founder of www.creditexpertwitness.com and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here.