How Divorce Impacts Your Credit

How Divorce Impacts Your Credit

By M. Scott Gordon

Divorce is a life changing event that can have a serious impact on a person’s financial circumstances. With issues of property division, and spousal or child support, a divorcing spouse might find themselves asking how divorce will affect their finances. With this, one of the first financial questions a person going through a divorce might ask is how divorce will impact their credit.

By law, a person’s marital status is not a factor in calculating his or her credit score. Therefore, getting divorced technically does not in itself have an impact on either spouse’s credit. It is the financial issues encountered in the divorce that can affect credit.

Debts Handled In The Divorce Decree

Couples often have joint credit accounts during marriage. When a couple is divorcing, if there are any debts on these accounts, the couple can come together and decide which person is responsible for the debt. This agreement is written into a Marital Settlement Agreement, which is then reviewed and entered as a court order and part of the divorce decree. Even if the parties do not independently agree, a judge can divide the marital debts among the divorcing couple. If each person follows the court order and pays off their portion of the debts on time, and all joint accounts are cancelled or changed into individual accounts, the divorce should not affect either spouse’s credit. 

The Effect of Joint Accounts

Problems arise when the debts from joint credit accounts and obligations, such as mortgages, are not paid off. With a joint account, the people whose names are on the account have a contract with the creditor. Even if the judge orders one person to pay debts that were acquired during marriage, this does not take the other person off the contract with the creditors. If the accounts are left in the names of both spouses after the divorce, one spouse can run up the debt and fail to pay it. This failure to pay negatively impacts both spouses’ credit scores.

One way to avoid this is to try and get your name off any joint accounts before the divorce. If this is not possible, then you can attempt to do so after the divorce. If you try to get your name off a credit card account, for instance, you may need to pay off any outstanding balances, or get your spouse to accept responsibility for the account. You should contact your creditors to find out how to remove your name from a joint account.

It may be more difficult to separate larger credit accounts such as mortgages. With mortgages, you may need to refinance the property to remove one spouse from the mortgage. In most cases, you may not be able to convert the mortgage to one person’s name due to some special circumstances. If this is the case, you and your spouse may need to work together to ensure the mortgage payments are made on time to avoid negative credit impact.  If one party is to assume the mortgage and buy out the other spouse, it is critical to have guidelines as to how the spouse assuming the debt will re-finance the mortgage.

Contact an Attorney

If you are going through a divorce in Chicago, Cook, Lake or DuPage counties and want to better understand how it will affect you financially, contact the Chicago area divorce attorneys at M. Scott Gordon & Associates, and see how we can help and support you through the divorce proceedings.