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How can divorce affect your credit?

On Behalf of | Jul 3, 2024 | Family Law

If you’re thinking about getting a divorce, you may wonder how it will affect your finances. You may have already considered the obvious impacts, such as a reduction in income and changes in expenses, but you should know that a divorce may also impact your credit.

A divorce is a civil matter between you and your ex. Creditors aren’t part of the process, so they don’t have to abide by your property division order. This means that they can still hold you and your ex accountable for balances, regardless of who’s supposed to pay, unless you transfer debts to one individual’s name only. Unfortunately, negative marks on your credit history because of a non-paying ex are treated the same as any other delinquencies.

How can you protect yourself from negative credit events?

One of the most effective ways to protect your credit when you’re going through a divorce is to liquidate assets to pay off as much debt as possible. Once accounts are paid off, they should be closed. This option is typically only suitable for those who have ample assets that they can use to pay off the martial debts.

If you don’t have enough assets to cover these debts, transferring joint debts and/or assets into individual accounts might be possible. This is only possible if creditors allow it to happen. In some cases, the risk of allowing one person to assume an account as an individual account may be too great, which could lead to a creditor denying this option.

Accounts that can’t be paid off or moved to individual accounts have the greatest risk of negatively impacting your credit. If your ex fails to pay as required, a creditor may report the delinquency. It may be necessary to return to court if your ex refuses to pay as ordered.

The property division process that occurs during divorce is a time for you to try to establish a firm financial foundation to start off your new single life. Getting assistance from a legal representative can help you to learn how to approach your divorce process strategically in ways that can benefit you for years to come.