How Can a Divorce Affect Your Credit Score?

Marriage is more than just a legal relationship: it’s also an emotional, social, and financial one. It should come as no surprise, then, that a divorce has all of those components as well. If you are facing divorce, the financial aspects are probably of great concern to you—and you’re not alone. One of the financial questions we often hear in our divorce practice is, “How will a divorce affect my credit score?” The answer is, “Often in ways that you wouldn’t expect. “

Does Divorce Affect Credit Score?

First things first: the act of getting divorced, in and of itself, does not affect your credit score. Your credit report does not indicate whether you are married or single, and there’s not a big red “D” stamped across it that brands you as a credit risk.

All of that said, it is your financial behavior that affects your credit score, and during the breakdown of your marriage and your divorce, you or your spouse may be making less-than-ideal financial choices. Either one of you may be running up a joint credit card account and not making payments. Extra living expenses may mean that you don’t have the funds to continue paying off old debt. And all the stress and pressure you are under may cause you to be distracted and forget to pay bills.

Furthermore, if you have a child support obligation and fail to make payments as required, your pay and tax refunds could be subject to garnishment, and your credit score could suffer.

So, the accurate answer to the question “Willa divorce affect my credit score?” is “Not necessarily, but bad financial choices during divorce will.” There are some financial pitfalls that everyone is vulnerable to in divorce, but just knowing about them can help you steer clear and protect your credit in divorce and beyond.

Preparing for Pitfalls: How Does a Divorce Affect Credit Score?

One of the ways a divorce can affect your credit score is by making you, or keeping you, responsible for a debt that you didn’t think was your obligation. A common example is the mortgage on the marital home. Let’s say your marital home is valued at $600,000 and has a $300,000 mortgage on it for which you and your spouse both signed.

In your divorce settlement, you agree that your spouse will get the home and that they will be solely responsible for the mortgage. You deed your interest in the house to your now ex-spouse, giving them full ownership per the terms of your divorce. If your ex-spouse stops making payments, what happens? They could lose the house, and they will certainly have a black mark on their credit for failing to make payments. But—surprise—so could you! And the mortgage company could come after you for payments.

How can that be? You signed the house over to them, and the divorce decree explicitly said they would be responsible for mortgage payments. Isn’t the divorce decree legally binding? Well, yes. The divorce decree is binding on you and your ex-spouse. Unfortunately, it is not binding on the mortgage company or other third parties.

Per your contract with the mortgage company, you and your spouse are jointly responsible for the mortgage debt, and the lender is entitled to pursue payment from either or both of you. (Your recourse if they do is to go after your ex-spouse for the money, per the terms of your divorce. That doesn’t, of course, guarantee that your ex will have the money to pay you). In this process, your credit could take a serious hit. Is it technically due to your divorce? No. But it clearly flows from the events of your divorce.

The same thing could happen with any type of debt for which you and your spouse became jointly liable during your marriage, including credit card debt. And if you can’t or don’t make payments per an agreement with a third party, your credit score will suffer.

How to Protect Your Credit Score During Divorce

There are a number of measures you can take in a divorce to protect your credit score during and afterwards, including:

• Refinancing joint debt, including mortgages, so that it will be solely in the name of the person to whom it is being awarded in the divorce.
• Do not co-sign any loan for your soon-to-be ex-spouse. And do not incur any new debt together.
• Minimize credit card use and, if possible, pay off any joint credit card debt before your divorce.
• Begin monitoring your credit as soon as you know you plan to divorce, and continue monitoring it throughout and after the divorce process. A credit-monitoring service can alert you to activity on your credit report, including changes to your credit score, so that you can address them promptly.
• Work with a certified divorce financial planner (CDFA) or other financial expert to ensure that you have a good handle on your financial situation, including a solid budget that will keep you from going into debt and damaging your credit.

Whether you have a tight budget or significant assets, it’s important to do everything possible to protect your credit score during divorce. An experienced divorce attorney can connect you with helpful financial professionals and help ensure that your divorce decree protects you as fully as possible.

To learn more about how a divorce attorney can help you avoid credit pitfalls and protect your credit score during divorce, contact Strickler, Platnick & Hatfield to schedule a consultation.