A messy divorce can take a toll on a person’s finances, resulting in late bill payments or higher-than-normal credit card debt when covering the extra costs.
Marital status does not affect creditworthiness, so filing for divorce does not immediately hurt your credit score. However, many divorcees experience problems with their credit after the fact.
A messy divorce can take a toll on a person’s finances, resulting in late bill payments or higher-than-normal credit card debt to help cover the extra costs. These are the types of things that can negatively affect your credit.
Divorce Reduces Your Income
If you were a two-income household before the divorce, you are now a one-income household. If your ex-spouse was the primary breadwinner, you are now dependent on timely alimony payments or securing a new job for income.
This change in financial situation can result in missed bill payments or increased credit card debt, both of which can hurt your credit score. Divorce can also result in credit card companies reducing the amount of credit you are eligible for if your joint income isn’t as high as it used to be. You may now have a higher debt-to-income ratio, which can affect your credit score as well.
If divorce has reduced your income, it’s important to create a new budget for yourself and accept making some lifestyle changes. Are there monthly luxuries you can do without, such as music-streaming services or gym memberships? Should you sell your home or car? These are the types of hard, but necessary, decisions you might have to make to maintain a strong credit rating.
Joint Debt Is Neglected or Abused
Do you and your ex have joint credit card accounts or joint debt, such as a mortgage or car payment? If accounts are in both of your names, both of your credit scores can suffer for non-payment of the joint debt, regardless of whom the judge orders to pay the bill.
If your ex is not paying his or her share of joint credit debt after divorce, you have no choice but to pay it yourself or suffer the credit consequences. You can try to go back to the court later to sue for reimbursem*nt, but it won’t help you at the time.
A problem that arises in some divorce situations is that one spouse purposely runs up joint credit card bills to hurt the other spouse. Because of this, it’s best to separate all joint accounts as quickly as possible. You may need to work with your lawyer to find out what you legally can and cannot change, especially if your spouse will be relying on you for ongoing support.
Another problem that can come up in a divorce situation is that one spouse does not fully disclose all his or her debts. Hiding assets or debts during a divorce is, unfortunately, a common problem. It is also illegal, which is why retaining the services of a competent attorney during your divorce is extremely important, even if it does cost more in the short-term.
Divorce is Chaotic
Divorce is a complicated and overwhelming process, especially if there are kids or significant assets involved. It’s easy to overlook everyday chores and bill payments when you’re in the middle of a divorce. Some people also end up missing bill payments because they forget to do simple things, such as notifying the post office that they changed their address.
To stay organized and on track with your finances after divorce, request a copy of your credit report from the three major credit reporting agencies, Equifax, Experian, or TransUnion. Make a note of all debts in the report, close any joint accounts that can be closed, and make sure you are receiving the monthly statements for all other open credit accounts. Even after the divorce, continue to monitor your credit report to prevent any errors.
Divorce can add up
While separating spouses may amicably work out visitation and custody agreements, only a court of law can issue a divorce decree. This means you either hire a lawyer or try to proceed through the divorce court system (and the piles of paperwork and legalese that most of us aren’t familiar with) on your own.
Most people opt to work with a divorce lawyer, and if your divorce is at all complicated or hostile, the bills can add up quickly. It’s important to do your homework, surround yourself with competent advisors, and take the necessary steps to protect your creditworthiness now and for the future. For more information on how to financially prepare for divorce, click here.
While getting a divorce doesn't directly hurt your credit score, it's common for people to find themselves in trouble with their credit after a divorce because many of the financial dynamics that you're used to change drastically.
To put it simply, regardless of your financial position during a marriage, you'll likely have less money coming into your household after a divorce, and you may not be able to afford all the things you used to when you were married.
Marital property is generally defined as all income, property, and debts acquired during the marriage. That property is seen as owned equally by both spouses, and therefore will be distributed equally after the divorce, with a couple caveats.
Most commonly, spouses have to go from supporting one household to two and this is usually all you have to explain. Sometimes, there are additional costs for one of the parties resulting from the divorce (like child support or family law attorney's fees) that can be mentioned as part of the financial hardship.
In most states, you are responsible for all credit card debt incurred in your name in a divorce. You will not be responsible for your spouse's credit card debt if it is in their name only. In community property states, if the card originated during the marriage, you are responsible for 50% of the debt.
Divorce is expensive, and researchers at the Federal Reserve Bank of St. Louis quantified some of the losses. After separation, men's incomes on average drop 17% while they decline 9% for women, researchers said in a blog post Monday.
Despite their best efforts to arrive at an equitable agreement, financial disparities between spouses after divorce are a reality for some couples. There is a good body of research on the subject that shows women bear the heaviest financial burden when a couple divorces.
Many people must adapt to a lower standard of living after a split. Divorce is a stressful process. Legally ending a marriage can bring up difficult emotions and feelings of failure. If couples cannot agree on a fair settlement, the legal process can take a financial and emotional toll.
Ultimately, the overall economic quality of a man's life, based on earnings and amount spent on living expenses, increases after his divorce. He continues to earn more but bears fewer family expenses. The overall economic quality of a woman's life, post-divorce, decreases.
This is a common question; the general answer is, “Maybe.” Any asset acquired while two people are married is subject to asset distribution in divorce. This means if your pension was funded, even partially, during your marriage, your spouse may be entitled to half of the portion that was funded while married.
While the specifics of financial responsibilities during divorce vary depending on your jurisdiction and individual circ*mstances, it's generally expected that both spouses contribute to the maintenance of the household until a final settlement is reached.
If you took out a mortgage to buy a house while married, that debt is community property. You're both responsible for it. If you bought a car with money that only you earned while married, the car is community property even though the money used to pay for it was earned by you and not your spouse.
If all else fails and you cannot refinance your house or your lender declines to release you of liability, the next best thing to do is to sell your home and split the proceeds with your ex-spouse.
Ideally, try to pay off as many joint debts as possible before the divorce is finalized. This makes settlement negotiations easier and helps make for a cleaner break. However, this is not always possible due to other debts, including spousal and child support.
When a person is ordered to pay alimony or child support it can be reflected in their credit report. If you are in arrears or have ever been in arrears on court-ordered support, the credit bureaus are required to report delinquencies. This can have negative effects on a person's credit score.
If your spouse has a bad credit score, it will not affect your credit score. However, when you apply for loans together, like mortgages, lenders will look at both your scores. If one of you has a poor credit score, it counts against you both. You may not qualify for the best interest rates or the loan could be denied.
If you legally divorce or separate, you usually need to adjust the amount of tax withheld from your paycheck. To figure your tax withholding, use the Tax Withholding Estimator. Then use your estimate to complete and give your employer a new Form W-4.
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