As if divorce isn’t fraught with enough pain and aggravation, your finances can wind up as collateral damage if your ex or soon-to-be ex has bad credit.
Months after you’ve moved on, you could be unexpectedly rejected for a car loan or a new credit card. The interest rate on a card you already have might skyrocket, too.
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In a previous Next Avenue blog post, “Getting Married? 5 Rules for a Midlife Prenup,” I urged women in their 50s and 60s to sign a prenuptual agreement before retying the knot. I pointed out in passing that a prenup can spell out who'll be responsible for outstanding debts if the marriage ends in divorce.
But I let the D-word off too easily by focusing strictly on how to protect your assets.
Years to Repair a Credit Record
A blinding rain of subsequent e-mails and calls from readers and friends reminded me that an ex’s financial infidelity can be a monumental hassle when you split. Many of the women I heard from said it took them months — sometimes years! — to get their credit record back in shape.
Put simply, if you have any loans or credit cards in both of your names, your ex’s dodgy credit — the result of missed or late payments — can cause you serious damage. (The same may be true if you filed joint tax returns and your former spouse owes money to the IRS.) When you opted to marry your credit accounts, that’s when you truly said, “I do.”
“Any bad credit marks on your credit report will stay with you for seven years or longer,” says Gerri Detweiler, director of consumer education for Credit.com. “Who wants to live with their ex's bad credit behavior for seven years?”
Joint Accounts and Your Credit Score
All your joint accounts appear on your credit reports and are factored into your credit score. So if your name lingers on a co-signed loan for his BMW or you opened up credit cards jointly, you’re liable if your ex falls behind in payments, even if your state has declared you divorced.
In your defense, co-signing might have made perfect sense initially. Most couples put both their names on the mortgage, each owning half the value of the home. And you may have needed to be on the hook for his car loan or credit card because your ex’s checkered credit history meant he’d be turned down without you.
(MORE: Dealing With Massive Credit Card Bills)
4 Tips to Protect Your Credit
But since you’re never truly divorced from each other until your credit is divided, here are four steps I strongly recommend you take to split your credit record when divorcing (check with an attorney for particulars about your situation):
1. Close joint credit card accounts. Call the credit card issuers to cancel cards that were opened in both of your names. This way, you won’t be responsible for the payment record of future purchases made by your soon-to-be ex. If you don’t have a credit card of your own, apply for one.
“Yes, closing credit card accounts can ding your credit score, but it may be better than the risk of him running up new charges you’ll be stuck with,” Detweiler says.
2. Get your name or his name off the mortgage, if possible. This can be tricky, though. If your ex has bad credit and keeps the house in the divorce settlement, your mortgage lender probably won’t let you remove your name from the loan agreement. Your best move then is probably to sell the property and divide the proceeds.
You could try to get your ex off the mortgage by buying him out and refinancing the house in your name, if you can swing the monthly payments alone.
The worst scenario: Your ex stays in the house, refuses to refinance the mortgage alone (or can’t because of his bad credit rating), doesn’t make the payments and lets the house go to foreclosure. That's when you'll get chased for the balance.
Don’t saddle yourself with mortgage debt indefinitely. “Try to get a stipulation in the divorce decree that the house will be either sold or refinanced into a loan in your ex’s name within a certain period of time,” Detweiler advises.
3. Monitor any joint credit cards and loans that you can’t close. If your name is on the account, and your ex fails to make his or her share of the payments, you’re the one that lenders will come after even if the divorce decree says your ex is responsible for them.
Two suggestions: Make sure the lender or card issuer has your mailing address, so you’ll receive any notices of late or missed payments. And sign up for electronic banking for each of the loans and cards, so you can monitor your ex’s payments online.
If late or missed payments are ongoing, you may need to work with your attorney to take legal action, and you might seek help from a credit counseling service.
4. Stay on top of your credit record and your credit score. After a divorce, it’s especially important to review your credit reports regularly to see if your ex’s troubled debts are hurting your credit record.
Visit annualcreditreport.com once a year to request a free credit report from the major consumer credit reporting agencies — Experian, Equifax and TransUnion. If any loans or credit cards tied to your former spouse pop up in your credit report, file a dispute with the credit bureaus. The Next Avenue article, “6 Ways to Overturn an Error in Your Credit Report,” shows you how.
To get a free credit score, go to credit.com. You’ll receive an Experian Scorex Plus score and an estimate of your FICO score. You can check your score gratis once every 30 days. If your score is heading down and you haven't done anything to cause that, you'll need to find out what's up.