Protecting my Credit During the Divorce Process
The divorce process can be turbulent and unsettling. There are a lot of emotionally-charged issues to deal with, and this can cause personal concerns to take priority over money matters. There is a lot of uncertainty when you are getting ready to go out on your own, however. And one of the major issues most divorcing spouses need to be concerned with is surviving financially. This means, among other things, protecting your credit during the divorce.
Preserving your good credit is essential, because you may need this as a lifeline to help you during the transition from married to single to whatever comes next. There are several steps you should take to safeguard your credit during the divorce process, here are six of the most important:
- Close your joint credit accounts with no outstanding balance
If you have any joint credit cards or lines of credit that have little to no outstanding balance, it is best to close them out as soon as you become aware that you are getting a divorce. This would include credit card accounts that are opened in your name only, but your spouse also has a card. This is especially important if your spouse has the tendency to be a spendthrift and/or it is possible they might run up debt out of revenge or spite. Contact your creditors right away to shut down your joint accounts, so your exposure to financial damage is limited.
- Monitor the activity on accounts you choose to keep open and active
You may have some unsecured loans with large outstanding balances that you cannot afford to pay off. With these loans, keep a close eye on the activity to ensure that no reckless spending is occurring. If you have major concerns about your spouse running up more debt on these accounts, contact your creditors, inform them of your divorce, and ask them to freeze your credit line. This also applies to open credit lines on secured property, such as a home equity loan.
- Use your available credit wisely during the divorce process
You should have some credit accounts that are in your name only. If not, it might be a good idea to apply for a few, especially if you are closing out some joint accounts. Use the credit you have available very carefully while the divorce is in process and after it is finalized. This is important for two reasons. First, you want to have a substantial amount of credit available in case of an emergency. Second, one of the major factors credit bureaus use to calculate your credit score is percentage of available credit used. The lower your percentage of credit utilization, the higher your score tends to be.
- Check your credit reports on a regular basis
An even larger factor credit bureaus use to calculate your credit score is derogatory information. Any late payments and other negative information on your report will have an adverse effect on your score. Sometimes, creditors report inaccurate information to the bureaus, and this is especially common during and after a divorce. Keep a close eye on your credit reports from the three major bureaus to ensure there is nothing on there that shouldn’t be. If there is inaccurate information, you can file a dispute to have it investigated and removed.
- Do not give up title to property until any outstanding loans are refinanced
There are likely to be some secured assets that will go to either you or your spouse as part of the final divorce settlement. The most common examples are vehicles and real estate properties. This could be problematic if your name is still on a secured loan for a property that belongs to your ex-spouse, because if they default on the payments, you are also on the hook for the unpaid balance. One way to solve this problem is to insist that your spouse refinances the loan if they want sole ownership of the property. This will protect you from being held liable in the event of a default.
- Insist on an indemnity clause for shared debts that go unpaid
If you end up with any shared debts that your spouse is responsible to pay after your marriage dissolution is finalized (such as shared credit cards they are responsible for), insist on having an indemnity clause written into the final divorce decree. An indemnity clause gives you the right to file a civil claim against your ex for any shared debts they were supposed to pay but didn’t. A civil claim is a mechanism you can use as a last resort to recover compensation from your ex in the event that you decided to pay the unpaid debt yourself to protect your credit score.
Speak with a Skilled Alabama Family Law Attorney
If you are considering a divorce, you need a strong advocate in your corner who understands Alabama’s equitable distribution laws, and how marital debts may impact your credit score during a divorce. At Smith & McGhee, PC, we have over three decades of experience representing clients for divorce and other family legal matters. We know the common financial pitfalls divorcing spouses run into, and how to successfully navigate these issues and emerge from the divorce in the best possible financial position.
To schedule a personalized consultation with one of our attorneys, contact us today at 334-702-1744. You may also send a secure and confidential message through our web contact form.