The temptation to ignore your credit during a divorce can be strong, and unintended. After all, divorce generally brings stress and grief into your life, which likely dominates your focus. You may feel like you simply do not have the energy to worry about one more problem in the midst of the other pressures you're facing.
Even if you don't care today, at some point in the future the condition of your credit is going to matter to you again. The next time you decide to apply for a new loan, a new job, or new housing, your credit is probably going to matter a great deal, in fact. Protecting your credit during divorce is much easier than rebuilding credit that's been damaged after a divorce.
Your divorce decree will not protect your credit
One of the biggest mistakes people make during a divorce is misunderstanding the power (or lack thereof) of their divorce decrees. The truth, unfortunately, is that your creditors will not care about your divorce decree, nor are they legally required to accept its terms.
If you signed a promissory note to take out a joint debt with your ex, the lender is not going to accept your divorce decree as a get-out-of-jail-free card. Even if a judge has required your ex to take financial responsibility for a joint bill, the creditor will still hold you personally accountable if your ex fails to hold up his/her end of the bargain.
Consider your options
Although your divorce decree alone will not be sufficient, there are still a number of other options that might protect your credit during a divorce. You may not like some of the options available to you, but taking some sort of action is still typically better than sitting back and allowing the chips to fall where they may.
1. Sell joint assets
Is your divorce somewhat civil? If so, you and your ex might be able to agree together to sell your jointly financed assets (e.g., houses or vehicles). Selling joint assets can often prevent a lot of credit problems from ever occurring in the first place.
When you sell a joint asset, you have to use the funds to pay off the loan attached to it. Additionally, if you make a profit on the sale, you may be able to agree with your ex to use those funds to pay off other joint debts as well, such as credit cards or personal loans. If you like the house or car, you can certainly be the one who buys it from your soon-to-be ex.
Another strategy for protecting your credit during a divorce is to refinance your debts. If your ex, for example, is going to keep the family home, then you might be able to convince him or her to refinance the mortgage into a new loan without your name attached. If you're willing to refinance the debts for which you are going to be responsible, then your ex may be willing to do the same.
3. Make the payments yourself
No one likes to hear this option, but it should be discussed anyway. If your ex is unwilling or unable to make payments on a joint debt, then those late payments and other credit issues—such as default, charge-off, or collection—might severely damage your credit scores.
One way to prevent such credit damage is to make the payments on those joint debts yourself. You can always try to take your ex back to court for failing to honor your divorce decree and "hold you harmless," but in the meantime paying those debts yourself will protect your credit.
4. File for bankruptcy
If you cannot afford to cover the payments for your ex's share of your joint debt, and if your ex isn't willing to refinance or work with you to sell joint assets, then bankruptcy could be the best course of action. Your credit scores may take a further hit from the bankruptcy, but at least it would offer you protection from your creditors. It would not, however, offer the same protection for your ex.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
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