Most people think divorce is the end of their relationship with their spouse. I hate to be the bearer of bad news, but that's not necessarily true. In fact, divorce can be the beginning of a long and difficult battle to reclaim your credit and financial identity. But with proper planning, you can set yourself on a path toward financial independence and strong personal credit.
All debts remain
Your final decree of divorce, where a judge says "you owe this, you pay that," – that decree has no effect on the credit card or mortgage companies that have lent you money. Those creditors are not involved in your divorce. Further, they have no obligation to follow the judge's orders. As far as those companies are concerned, you're still on the hook for every piece of credit you signed for while married, even if the judge assigned responsibility for the debt to your spouse.
Beware of identity theft
Identity theft is common after a divorce. It may happen when a spouse is unhappy with the final decree. They might think they didn't get enough in the settlement, or they might dislike the custody arrangements. Or, they might have other grievances. And your spouse has access to your personal information, so they're in a unique position to steal your identity. This isn't meant to scare you. But, it should prompt you to prepare. With proper planning, you can avoid the worst-case scenario and keep your credit in good standing.
I am going to put this straight: It will take time and effort to go through this process. Further, you are the only one who can take many of the steps outlined below. But what you do now can set the tone for a bright financial future.
1. Create a file to track your credit
Before you file for divorce, create a folder to organize all credit-related financial documents. Include copies of your most recent credit card bills, mortgage statements, and insurance bills. Include copies of statements from other recurring accounts and outstanding bills. Along with this, include copies of statements from bank accounts, investment accounts, checking accounts – those in both your names and those in your name alone. If you're divorcing amicably, get them to do the same thing before proceedings start.
2. Get a copy of your credit report
By law, you are entitled to a free copy of your credit report every year from each of the three major credit reporting agencies. You can do this by visiting AnnualCreditReport.com. It's the only site authorized by the federal government to provide this information for free.
You can also find a number of free resources, including templates for letters requesting your credit report from the major reporting agencies, on my website. It's important to request a report from each of the major credit bureaus: Equifax, Experian, and TransUnion. You may find different items reported by each agency.
Your spouse should get a copy of their credit report, too
Ask your spouse to do this as well. But remember: You are not allowed to access their credit report. The credit reports will identify all of your outstanding credit accounts. The list might differ somewhat from the statements in the file you've already created. You may see evidence of accounts you thought were closed that have not actually closed. You may also see on the inquiry log a list of inquiries from debt collectors and other companies looking to collect money from you. This may suggest there is more debt out there than you think. It's important to access your credit report so you get a full picture of the debts owed by you and your spouse.
Specialty credit report
Another type of credit report is a specialty credit report. This report covers banking and checking accounts. The companies that issue these reports have information from almost every major bank in the country. You can immediately see all banking assets in your name and your spouse's name. You can order your specialty report from TeleCheck, ChexSystems, and EarlyWarning. Get a free letter to order these reports from my website at this link . By the time you complete this step, you'll have a good picture of your debts and many of the assets of your marital estate.
3. Close joint accounts to new charges
Before you start the divorce process, close off your existing accounts to new charges. You do not want to continue to incur your spouse's charges after divorce proceedings have begun. You may not be able to close the accounts fully because you need to pay them off first. This may be done with funds from the marital estate.
Get it in writing
Close your accounts in writing. Keep a copy of each letter you send in your credit file. Make sure you get a response from each company acknowledging that your account is closed to new charges and indicating your current balance. Be persistent in getting that response. Without it, it's possible you could be hit later on with charges incurred by your spouse on a joint account.
4. Close and discharge any joint debt with your spouse
For any joint credit cards you share with your ex, you want to share marital estate assets to pay them off and shut them down. And, make sure they're closed in good standing. If you can't close those accounts, you'll continue to be responsible for any joint debt you agreed to with your spouse. This includes credit cards, mortgages, checking accounts, car loans, and more.
After the divorce, you don't want your ex to maintain any kind of control over your financial freedom. This is the way to do it: Pay off those accounts now, with marital assets, to the extent that you can. Sure, your marital assets might not cover all the debts. However, in many cases, refinancing options are available so joint debts can be paid and a new line of credit opened in the responsible party's name. If possible, use these assets to make a clean financial break from your spouse.
5. Update credit reporting agencies and creditors with your new name, address, and relationship status
Notify all credit reporting agencies and all of your creditors of your new marital status, your new name, your new address, and the fact that you will no longer be responsible for new charges on the accounts you have closed. Identify the accounts you have closed to new charges. And, make sure you keep a copy of this letter with your credit file. In the future, if problems crop up, you'll have the documentation you need to show you've notified the credit bureaus of your new address and status.
As you move forward, if you were unable to pay off joint debts with your spouse before your divorce was finalized, you'll want to continue to know – and have notice – if your spouse is continuing to pay that mortgage or that credit card bill. The only way to do that is to make sure these creditors have your new address moving forward.
6. After your divorce, monitor your credit reports
After your divorce is finalized, monitor your credit reports and the accounts in those reports that were joint accounts. You can do this by pulling your credit reports annually. You'll want to make sure if the final divorce decree assigned responsibility to your ex for a debt that was jointly held – mortgage, car payment, credit card – that they're paying that debt on time. If they aren't paying on time and it's a jointly held account, your credit will be impacted. You may end up paying higher credit card rates, losing insurance, or losing a job opportunity because of the adverse credit reporting information.
If your spouse has been assigned responsibility in the divorce decree, as soon as you know they are not paying a credit card or mortgage on time, you can bring that back to the judge and ask the judge to force them to do this. You can also ask for damages at that point (for the damage to your credit report). That's why it's important to monitor your credit reports: If you don't know what's happening, you can't get help from the court.
7. Stop prescreened offers of credit, and request a credit freeze
Those prescreened offers of credit that land in your mailbox can be tempting for an ex-spouse. Prevent them from falsely opening a new line of credit in your name by opting out of prescreened offers of credit. You can find the form to do this here on my website.
You may also consider requesting each of the credit bureaus to freeze your credit. The freeze prevents potential creditors from accessing your report to issue new credit. When you place a freeze, the credit bureaus lock down your credit reports unless you unlock the report. These freezes will prevent you from receiving point of sale credit – like a store credit card you might apply for at a cash register. While this may be inconvenient, it will also make identity theft difficult.
8. If your ex isn't paying on a joint account in time, you should
This isn't the most popular advice I give, but look: A derogatory mark on your credit report will stay with you for seven years and can cost you thousands of dollars. You don't want to suffer a ding on your credit report just because your spouse has refused to pay a bill you jointly owe. You remain responsible for payments on any jointly held accounts in the eyes of creditors and the credit monitoring system, so make sure you're monitoring those jointly held accounts ... and take action, if necessary.
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What's after divorce?
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