While your marital status does not influence your credit score, the implications of a divorce can cause a “ripple effect” on your overall financial situation. This may ultimately hurt your credit score. Read on for more information about important things to keep in mind about your finances in the midst of a divorce.
In many marriages, it’s most convenient for the couple to share ownership and management of everything, including their finances. Opening joint bank accounts, authorizing each other on credit accounts, co-signing on loans and/or leases — these are all common financial practices for married couples.
But what happens in the case of a divorce? Does a divorce influence your credit score? Does a divorce hurt your credit score? What happens to the joint accounts once you are no longer married?
What Should I Expect?
First of all, it’s important to remember that although joint accounts are most commonly opened by married couples, it is not required. Any two people can open a joint bank account regardless of their personal relationship. So, any joint account that you and your spouse opened will remain a joint account after a divorce.
Note that opening a joint bank account — whether a checking account, savings account, or joint credit account — is different than adding your spouse as a user on your personal bank account. While you cannot close a joint bank account or remove someone from a joint bank account without their consent, you can remove someone as an authorized user from a credit account.
This distinction is critical when it comes to determining how to divide your assets. Ensure you have a clear plan for how to distribute the funds within a joint account. You’ll want to defund the account entirely and transfer your funds to your individual account(s). Otherwise, your ex-spouse will still have complete access to those funds; depending on the nature and circumstances of your personal situation, this may or may not be cause for concern.
Some Notes About Credit Cards
Meanwhile, any credit debt you incur as a primary account holder is still your own responsibility after a divorce. Even if you add your spouse as a user on your account, the account is still in your name. Thus, it is still your responsibility to make payments. However, perhaps you added your spouse as an authorized user to your account, and they used it exclusively for their own purchases. It’s important to discuss this situation with your attorney to ensure the divorce settlement reflects this debt.
While an authorized user is not responsible for making payments, the account still appears on their credit report. This may have a positive or negative effect on their overall credit score. If your credit score improved when your partner added you, expect the opposite when they remove you.
Long story short, a divorce has no direct, immediate impact on your credit score. However, it’s wise to review other financial factors that one should consider in the settlement proceedings. Working with an experienced attorney ensures that you’ll avoid a troubling financial situation once the dust settles. Give us a call today to discuss your case!