Top 3 Tips to Protect Your Credit and Stay Out of Debt when Divorcing

In 2020, nine couples divorced in the US for every 20 couples who got married (CDC 2022). Despite that high rate (45%), many couples enter the path to divorce with very little understanding of how it will affect their personal finances before, during, and after the separation. Too often, divorcees emerge from their legal drama only to face years of financial challenges and heartache.

What are the top credit and debt moves someone going through divorce could make?

Anyone approaching or going through a divorce should protect their credit and minimize the chances of having to take on more than their fair share of the marriage’s debt. This includes freezing their credit history, pre-empting being responsible for your ex’s debts, and not trusting the divorce decree.

Many soon-to-be divorcees take no steps to protect their credit because they believe the proceedings of their divorce will remain amicable. In some cases, this is true. I’ve interviewed and counseled many people who are still on friendly terms with their ex-spouses. Unfortunately, in far too many cases, tempers can flare to such an extent that previously rational and courteous individuals can even turn spiteful.

Few targets of vengeance present such low-hanging fruit to an angry soon-to-be-ex as your credit and your debt. Read on to learn what you need to know and do to protect yourself.

Don’t Trust the Divorce Decree when It Comes to Debts

The number one financial piece of advice I give in my credit classes when it comes to divorce is “Don’t trust the divorce decree.” Just because it’s an official court order, we seem to believe that everything it stipulates will happen as written.

Think about it this way: child support is also an official court order, yet less than half of custodial parents  (44% according to the Census Bureau) receive the full amount of child support regularly.

If you are approaching, going through, or coming out of a divorce, you should also understand that you do not divorce your creditors, no matter what the decree says or what your ex agrees to. The decree might indicate that you will have to pay debt ABC while your ex will pay debt XYZ. However, as long as your name is on the accounts, you are still held financially responsible for the debt.

That means that if your ex stops making payments to the debts they’re responsible for according to the divorce decree, the creditor will track you down and ask you to make the payments. If you don’t pay, the creditor will report the account as late, which will hurt your credit. They may even sue you in court and proceed to garnish your wages.

Remove Your Name from Debts Before, During, and After the Divorce

It can seem more than unfair for creditors to consider such drastic measures against you when you have court paperwork that appears to release you of responsibility to pay that debt. However, since creditors are not parties in the divorce case, the court cannot force them to change the terms of the loans.

Those loan terms include the names of those originally on the loan application paperwork. Whether for a credit card, a gas or retail store card, a car loan, or a home loan, if both your name and the name of your ex-spouse were on the application, to begin with, you will both be responsible for paying the debt, regardless of what the divorce paperwork says.

With that in mind, you should consider it a top priority to get your name off joint accounts as soon as possible. Ideally, you want to start this process before the divorce. Keep in mind, though, that since the creditors originally offered the loan or line of credit to two consumers, removing one of them from the account means the lender is taking on a greater risk since they will only have one consumer to pay the loan instead of two. For that reason, there is absolutely no guarantee that a creditor will remove your name from the account just because you’re asking or even because you’re going through a divorce.

Still, you may find one or more of your creditors will allow you to remove your name if you can provide a copy of your divorce decree indicating that your ex is considered responsible for making the payments. However, many will not.

Unfortunately, the reality is not more comforting to anyone going through a divorce.

Close Accounts During Divorce to Prevent Revenge Spending

If you are unable to remove your name from a credit card or store card account, another option involves closing the account. If there is no balance on the account, you may find the creditor more willing to close it or remove your name.

If there’s a balance on the account, you might consider asking the creditor to convert the line of credit to an installment loan that you can repay in set monthly payments over a designated period. Although this doesn’t remove your responsibility to make payments, it all but removes the possibility of either party adding to the current balance.

Still, because it’s a joint account, the creditor will require both you and your soon-to-be-ex to agree to close or convert the account. This will require cooperation between you and the other party to the divorce.

Closing the accounts will offer another layer of protection against the potential for future troubles. Despite best intentions, divorce proceedings can sometimes take a turn for the worst, leading some parties to act spitefully. It is not uncommon for a few to even resort to what we term “revenge spending.”

Revenge spending involves one spouse going on a shopping spree or using a credit card to fund an exotic trip, knowing that their spouse may have to split the cost during the divorce. If you notice such behavior, keep detailed records of receipts for the court to consider. Judges don’t usually see such behavior as very adult-like and will often assign all such debts to the party who did the spending. Still, if your name is on that account, you face the problem of dealing with the creditor’s agreement that holds you equally responsible regardless of the judge’s opinion.

Freeze Your Credit

The final recommendation I have for parties considering, going through, or have recently gone through a divorce is to freeze your credit. Freezing your credit means that no one can access your credit reports without you unfreezing them, which requires your password or a PIN. Freezes are free, and you can place a freeze on your report or lift it at any time at no charge.

If a vengeful ex-spouse (or, in some cases, we’re seen, their new spouse or new boyfriend/girlfriend) tries to use your social security number to open a credit card account in your name, that credit card company will try to access your credit report before approving the application. If they can’t access your credit report, they will not open an account. Problem prevented!

To freeze your credit report, follow the steps detailed in our Freeze Your Credit. Or, you can go to each of the consumer reporting agencies (CRAs):

It would also be a good idea to change your email password and not share it with your soon-to-be-ex. That way, he or she can’t use it to reset your credit freeze password or PIN.

Make sure you choose to freeze your credit report and not just put a fraud alert on it. A fraud alert does not prevent creditors from opening accounts as a freeze does.

If you have minor children, you might also consider adding a freeze to their credit reports as well. Unfortunately, some desperate or particularly unscrupulous divorcees may try to use their own children’s social security numbers to open utility accounts or credit card accounts. This can result in your child having collection accounts in their name that they never opened. Prevention in such cases is much better than correcting the issues later.

To freeze your own credit reports, it can take about 5-10 minutes at each consumer reporting agency. For minors, you will need to print out a form, complete and sign it, and mail it to the CRAs along with copies of identity documentation, such as birth certificates or social security cards.

In Case of Divorce-related Financial Problems

For divorcees who struggle with debts incurred before, during, or after divorce that the creditors refuse to align with the divorce decree, you have a few options. You can provide a copy of the divorce decree to the lender and hope they agree to it.

If not, you might check with your attorney to see if they have had any success sending a letter on their letterhead to make such requests. This will, however, mean you will incur attorney fees, and there is certainly no guarantee that the lender will change their minds.

If you are unable to remove your name from an account, and the other party to the divorce does not make payments, you might consider working with a nonprofit credit counseling agency like Money Fit to set up a debt management plan with the creditors.

In extreme cases, and despite its financial consequences, bankruptcy may be an option to consider. Since you would need to speak with an approved credit counseling agency before filing your bankruptcy with the court, with or without an attorney, you should still meet with a credit counseling agency like Money Fit to discuss your options.

Related Questions

Does a divorce show up on your credit report?

A divorce does not show on your credit report. Your marriage or divorce status is not reported to the credit bureaus. You may add a consumer statement indicating that your ex-spouse is responsible for certain accounts per the divorce decree, but this has no effect on the creditors.

Does your ex-spouse’s bad credit affect your credit rating after divorce?

Whether married or divorced, another person’s bad credit will not affect your own credit rating unless you share accounts as joint owners. If you have a credit card, store card, car loan, or mortgage jointly with both your name and his/her name on the account, then their credit can affect yours.

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