Money and marriage are tied tightly together, so it's no surprise to many that money and divorce (unfortunately) go together too. In fact, studies show that disagreement over money is one of the strongest predictors of future divorce. And during and after divorce, it's normal for people to experience financial distress. Understanding your options for credit repair after divorce and knowing how to protect yourself financially can help you shore up your future as a newly single person.
It's critical to understand how divorce affects credit.
Many people hear stories about divorce wrecking someone's credit. But it's not
the divorce that causes the
problem—it's the financial actions and decisions surrounding the divorce.
Your marital status isn't part of your credit report, and it's not a factor in your credit score. According to Experian, the credit bureau, changing your marital status in any way doesn't, by itself, impact your credit.
But that doesn't mean divorce is going to leave your
credit file squeaky clean. Here are some common reasons people experience
credit hiccups following a divorce.
According to the National Bureau of Economic Research, family income can decrease by 40 to 45 percent for people who divorce and remain unmarried for at least the next six years. Even if you don't take that big a hit in a divorce, you're converting from two people sharing income and expense responsibilities to one person handling their own.
That can make it more difficult to keep up with payments, leading to increased risk for late payments or even defaults on loans. Those negative items drag down your credit score. And, in worst-case scenarios, they can live on your credit history for seven years.
In extreme cases, post-divorce income can fall so short of
expenses that someone decides to file for bankruptcy. While bankruptcy does
come with a so-called financial clean slate, it also brings your credit score
down. Make sure you consider all your options and weigh the pros and cons of bankruptcy
carefully before you decide it's a pre- or post-divorce option for you.
It's common, though not necessarily always the best
idea, for married
couples to lean on each other when it comes to credit. If one of you has good
credit, it may be enough to get approved for a mortgage, for example. But
relying on your spouse to carry the good credit name in a marriage can leave
you without a credit history if you get divorced.
Even more risky is relying on your ex to help keep your
credit score safe after divorce. Many
people are surprised to find, upon divorce, that their partner had previously
hid financial facts from them. Around 45
percent had some type of financial skeleton in the closet, such as high
amounts of debt, secret spending or a hidden bank account.
If you can't rely on a spouse to have your best interests
in mind when it comes to money, do you want to rely on an ex to do so? If you
split up the debts and just agree to each pay your part, that's what you're
doing.
Consider, for example, a situation where you own a car
together. Both your names are on the loan, but your spouse takes the car and
agrees to make the payments. If they don't, your credit also gets dinged with
the late payment.
One option is to change the way your debts are
structured. Your spouse could take out a new loan for the car
in their own name, paying off the old one. You could close joint credit
card accounts after paying them off. One of you might buy the other out of a
mortgage by getting approved for an all-new loan in your own name.
This helps reduce your reliance on each other for
continued good credit, but it could have some temporary impact on your credit
score. It's important to understand these potential effects before you take
financial action.
Understanding these factors lets you make educated
decisions about your personal finances. It also helps you understand where to
take action to potentially build your credit after divorce.
It sounds dire, but with the right planning, you can
mitigate or avoid some of these issues. Educating yourself about credit, your
own finances and the money part of your marriage is a great first step. Check
out these other tips for protecting yourself or recovering financially after
divorce.
The total cost of divorce depends on how you file and whether you have other factors, such as child custody, to deal with. In most cases, if you can agree on everything going into the divorce, it's less costly. According to Nolo, the median cost of divorce is around $7,500 when attorneys handle everything.
If you're headed toward divorce and know it, it's a good
idea to save as much money as you can. If you know as a couple you're getting
divorced and can cooperate in this endeavor, it can help you both after
divorce. You're less likely to run up more credit card debt in divorce paying
for legal proceedings, for example.
Have a plan for joint bank accounts. It may be a good
idea to open your own bank account as soon as you separate and start putting
your own income there. You can't necessarily empty your joint bank account of
funds, especially if that money is considered marital or community property.
Instead, try to work together to create a plan for splitting the money.
In cases where that's not possible, talk to your attorney
about including bank account balances in the divorce paperwork. Ultimately,
your goal should typically be to get the money out and split in a legal manner
and then close the account. Otherwise, your name is still on the account,
making you liable for any activity or potential fees in the future.
Divorce can definitely make tax time more complicated,
especially the first year or two after the fact. If your divorce isn't
finalized, you have the option to file a joint return or file separately. Each
has different benefits when it comes to potential refunds, so you should
consider talking to a tax professional before you decide.
Once you get past that decision, make sure you and your ex
have an understanding about how you will include dependents and related
expenses on your returns. Taxes are often overlooked during the divorce and can
cause a fight later. After all, claiming dependents can mean a bigger refund,
so consider including these agreements in your divorce paperwork to avoid
problems in the future.
Even if you plan ahead to protect yourself financially
during and after divorce, splitting up rarely leads to perfect circumstances
immediately. Be prepared to protect your credit as best as you can, to avoid
taking a hit.
But that doesn't mean you need to take the hit lying down.
And it definitely doesn't mean that you need to accept unfair or incorrect
damage to your credit score.
Divorce can be complex, and it's easy to make small
mistakes during the process. It's also easy for the small mistakes of others to
cause a problem on your credit report. From items that aren't yours to late
payments that weren't actually late, little errors can add up to a poor credit
score.
Ensuring your credit report is fair and accurate might be the last thing on your mind during and after a divorce. And chances are, you don't have a lot of extra time and energy to spend right now. If you find yourself in a difficult situation, you can get help from the experienced services of CreditRepair.com. CreditRepair.com works with you and on your behalf to check your credit and challenge errors to help you work for the credit score you deserve.
![Sky Blue Credit vs. CreditRepair.com comparison [2022]](https://stg.creditrepair.com/hs-fs/hubfs/Imported_Blog_Media/sky-blue-1.png?width=339&height=588&name=sky-blue-1.png)