When couples divorce, many issues need to be addressed. Among some of the most common divorce issues are property division, spousal support and, if children are involved, child support and child custody.
Most of the issues that should be thoroughly examined while going through a divorce will have a financial impact once a divorce decree is finalized. Without proper consideration, a person’s credit may be vulnerable during and after divorce. Protecting one’s credit and corresponding credit score should always be a concern whenever dealing with financial matters.
In general, debts incurred during a marriage will carry over after a divorce. Such debt may include credit card debt, car loans and mortgage payments. Sometimes, divorcing parties will designate one spouse to assume responsibility for certain debts. This means that the two parties privately agree on who will be responsible for making certain payments. However, it does not mean that either party is relieved of legal responsibility for the debt. Whomever’s name is on the debt will ultimately be responsible for any missed or late payments.
There are several ways that divorcing parties can protect their credit during and after a divorce. Many financial advisors suggest that divorcing parties should:
- Obtain a credit report annually and monitor all activity
- Ensure that all payments are made on time
- Close all joint bank accounts upon separation
- Agree on who is responsible for each payment
- Establish independent credit after a divorce
- Keep debt at a manageable level
- Build credit by charging small amounts and paying balances off monthly
It is important for divorcing couples to remember that the financial decisions they make during the divorce process will have long-term consequences. Although sometimes it may be possible to modify a divorce decree, divorcing couples must make every effort to protect themselves and their credit by examining and addressing all financial matters before a divorce is finalized.
Source: The Boston Globe, “Divorce and credit,” Jill Boynton, 24 May 2011