For most people, divorce is a very difficult and emotionally challenging experience to go through.

Lawyers, mediators and counselors can be available to help navigate through making new living arrangements, custody issues and separating joint finances. However, in the midst of the chaos of the divorce people can overlook situations that ultimately have a negative effect on their credit standing. 

Let me start with the good news.  Divorce itself doesn’t automatically trash your credit scores.

Here are things you should be aware of so you can set yourself up for the best possible outcome:

Joint Credit Card Accounts:  Since these accounts are held by you and your spouse together, both of you are equally responsible for the debt, no matter how it is distributed in the divorce. Creditors will not honor a divorce decree so you both are still liable for that debt. This means if an account is left open, your ex can add more debt, make a late payment, miss a payment or default, and you will also be held responsible.

I recommend you close all joint credit cards and remove your ex as an authorized user from any credit cards which are open in your name only.

Mortgage Debt:  If you have a joint mortgage, and he/she is keeping the home and ultimately relieving you of any future personal financial obligations on the loan there are 3 ways to remove you from the loan:

1. Co-owner refinances.
2. You both agree to sell the property and pay off or settle mortgage debt.
3. Quit claim house to co-owner and file bankruptcy.

Keep in mind that a quitclaim deed has no effect on the mortgage, so even if you are removed from the deed, all parties on the mortgage are still responsible for payments.  To avoid any future issues, hold off on signing the deed over until they have refinanced, and you are no longer on the loan. Also, talk with you lawyer about adding a stipulation to your divorce decree that ensures your ex is obligated to refinance within an agreed upon timeframe.

Auto Loan Debt: The best way to avoid sharing a car loan with an ex-spouse is to either sell the car or remove your or their name from the loan. Auto refinancing is a great way to remove someone from a car loan.  Be sure to retitle the car after the loan has been refinanced.

If you have any questions call us at 800- 822-7120.

Until next time,

THD Credit Consulting