7 Ways to Protect Your Credit in a Divorce

Your credit score affects everything from your ability to qualify for a new credit card, car loan or home loan — to even your auto insurance rate. Here are seven ways you can protect your credit during a divorce.

1. Run your credit report. Every credit or loan item on the credit report needs to be addressed in the divorce decree.  There may be items you forgot about, or about which you are unaware.  Nothing should be left out of the decree.

2. Close all joint accounts and joint credit cards when the divorce is final, or by agreement before the divorce is final. You do not want the actions of your former spouse affecting your credit.

3. Remove yourself from any accounts on which you are an authorized user. If your spouse makes a late payment on an account on which you are an authorized user it will negatively impact your credit score.  When requesting removal request a letter of confirmation from the creditor that you have been removed.  Then run your credit report again to make sure it has been removed.

4. Remember that creditors look to the owner of the debt for payment. This was the agreement between you and the creditor.  You cannot alter that agreement by assigning the debt to your spouse in the divorce decree.  Therefore, even if your spouse is ordered to pay for something, the creditor will still look to you for payment.  When possible, it is best to structure the settlement so that you are responsible for the payment of debt that is in your name and you receive other assets to compensate you for taking on that debt.

5. Require loans, such as car loans and mortgages, to be refinanced by the spouse keeping the asset, and if not refinanced by a certain date, require the asset to be sold. Any late payments by your spouse will negatively affect your credit score.  Remember that transferring title does not change the loan obligation.  Both must be addressed in the divorce decree.

6. Determine your future financial goals. If you plan to purchase a car or home, or refinance an existing home, it is important to structure the decree to facilitate your qualifying for the loans.  Contractual alimony, child support and spousal support can help in providing an income stream to help you qualify for a loan.

7. Consult with a qualified divorce financial planner to determine your future needs. This can help you determine the best way to divide the marital estate.  Sometimes it is best to sell assets and eliminate debt when dividing the marital estate.