Why Divorce Wrecks Your Credit, and What You Can Do About It


Divorce doesn’t have to be a source of massive financial drama, but it often is. Financial trouble can even rear its ugly head when the couple has a lot of assets. People like to blame the lawyers for this, but legal fees usually aren’t the problem.

Instead, the problem tends to flow from one of the five following sources.

Your spouse may go on a “revenge spending” spree.

Spouses who are angry often run up the credit cards. Sometimes they’ll run up credit cards which should only be in your name, but which they have access to.

While you may continue to make the payments on time your debt-to-income and credit use profiles tank, which can drag your credit score down. And sure, you can get the judge to assign these debts to your ex when the time comes. What the judge can rarely do is force him or her to pay them.

Meanwhile, the creditors will continue to go after you, since your name is on the balance.

This is one reason why we recommend cancelling all of your joint credit cards just as soon as you know the divorce is imminent. If your spouse has access to any of your cards you should report them as lost or stolen and get new ones. Keep them in a safe, inaccessible location.

Refinancing the home might not happen fast enough.

You are ordered to surrender the family home to your spouse. Your spouse is ordered to refinance to get your name off the mortgage which, theoretically, he or she ought to be paying.

Instead, the spouse drags his or her feet on getting that done, or has trouble finding a lender. Worse, your spouse falls behind on the mortgage. Now you look like you don’t make your mortgage payments, and you could end up with a foreclosure on your record.

This is one reason why we often tell our clients to just let the house go.

There are other options. For example, if you share a copy of a divorce decree with some lenders they may be willing to simply remove your spouse’s name. Not all banks will do this, but it can’t hurt to ask. Keep in mind most banks will do this only if you’re current on your mortgage, and don’t owe more than it’s worth.

Your debts may divide, but your spouse may not pay.

The divide between divorce court and a creditor’s rights is wide. While a judge can demand an ex take responsibility for certain debts it’s very hard to make the spouse pay. And while your spouse can get in hot water for failing to comply with court orders, this won’t happen fast.

Meanwhile your creditors can still hold you liable for the debt, decree or no decree. Every missed payment will continue to show up on your credit report. This means you either have to choose between paying a debt you shouldn’t have to worry about or watching your credit score continue to tank. Not a fun decision.

Your spouse might even commit identity theft.

Ex-husbands and ex-wives are some of the most common identity thieves. Chances are your spouse knows your social security number and your date of birth, the two pieces of information that make it ridiculously easy to apply for credit cards in your name. There’s also a good chance your ex knows all your passwords, bank account numbers, credit card numbers, and more.

Be proactive.

  • This isn’t a good time to apply for new credit anyway, so freeze your credit. It’s free, and it will stop attempts to open new accounts in their tracks.
  • If you think you’ll need your credit long enough to get an apartment and set up utilities, set up a fraud alert instead, then freeze it.
  • Consider closing old bank accounts and opening new ones.
  • Report all your old credit cards lost or stolen so you get brand new credit card numbers.

Be vigilant about watching your credit. It takes a long time to clean up identity theft once it has happened.

You may not adjust to your new normal fast enough.

Divorce is going to make significant changes to your monthly income. If you continue to spend like you used to there’s a good chance you’ll wreck your credit.

It may be time to brush up on your money management skills. You might want to download (and use) a budget app. It might be time to downsize too. This doesn’t have to be a bad thing. If you can get to a point where you’re living within your means you’ll typically be a lot happier and a lot more comfortable.

You also need to be ready to contact your lawyers any time there’s a major life change. Lose a source of income? It may be time to get your child support or alimony payments modified. Those who decide they don’t want to deal with the hassle often end up paying far more money than they should.

If you pay attention to these issues before you get the divorce you may emerge with an unvarnished credit score and a fresh new outlook. If you’ve already been blindsided by some of them, take heart. It’s never too late to start moving in the right direction.

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