The Correlation Between Credit and Divorce

One of the most common myths of divorce is that the paperwork automatically separates and solves credit problems. The truth is that a divorce and a divorce decree do not solve the financial obligations and responsibilities of joint credit cards, credit lines, or loans. In an ideal world, after you have absolved and determined who will be responsible for which debts from a divorce, your spouse will hold true to their promise and make the payments. But in reality there are times when that does not happen; any late payments or collections on joint credit cards, mortgages, or installment loans, will still negatively affect your credit score. Unfortunately due to the nature of credit cards and other financial liabilities, a divorce or even a divorce decree does not remove the responsibility the creditor will place on you for timely payments.

One of the first things you should never do when getting a divorce is remove your name from the title of a property or car. This only causes more problems since that removed your ownership rights but does not remove your financial obligation to the mortgage or loan due on the property or car. Remember that any and all financial liabilities held jointly will reflect on both individuals' credit reports. The only mortgages, installments, and credit cards that are safe for each individual are those that are held individually, solely and separately from your spouse. Here are some methdos of protecting your credit from your divorce :

For Real Estate and Mortgages

Option 1: Sell the house.
For many people this is the simplest way to cleanly divide assets. By selling your home you are removing both you and your spouse's name from the ownership of the property and whatever profits come from the sale gets divided equally between the both of us, unless another previous agreement has been made that says otherwise.

Option 2: Refinance the property in one or the other person's name.
As long as your spouse's name has already been on title for a certain period of months (typically 12 months) the property can be refinanced solely under his or her name with a quitclaim, if still married. Upon completion, you will no longer be held liable for making timely mortgage payments. Make sure to get your share of the appreciate or "profits" from the property during the transaction. In order to ensure that you do not get the short end of the stick, do not remove your name from title or sign off on the divorce until the refinance has completely closed.

Cars and Loans

Option 1: Sell the car.
This is oftentimes the easiest method to clear both names. Once you sell the car you are no longer liable or held responsible for the payments due or insurance due on the car. However if your car loan is already paid in full and you both own the car free and clear, you do not have to worry about the automobile negatively affecting your credit report. It is still safe to remove your name or your spouse's name from the ownership of the car, and this can be achieved much simpler once it is owned free and clear. You can then transfer the ownership freely between the both of you depending on who is to be the owner post-divorce.

Option 2: Refinance the auto loan in one or the other person's name.
You can refinance the auto loan in your or your spouse's name, depending on who will be the owner after the divorce. Make sure, either way, that your name is not removed from title until the refinance has been completed.

Joint Credit Cards

Option 1: Close the account(s).
This is the best method to take -- it is the cleanest way of separating the debts during a divorce. Make sure to start new lines of credit individually before closing the account because as you well know, once the account is closed, you can no longer use the credit card.

Option 2: Freeze the account(s).
In many cases there is still a balance left on the credit card, preventing it from being closed outright. In these cases it is wise to freeze the accounts from future use and additional charges, giving you or your spouse the chance to pay down or pay off the credit card balance. Make sure to obtain individual credit cards before freezing them, otherwise you will not have access to charging credit.

As you can see there is much more involved in getting a divorce than just filing the paperwork. Often other factors of a divorce are not considered -- credit being one of the most overlooked factors. In order to protect you and your credit make sure to consider everything including the different lines of credit you may have with your spouse.