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What is the Worst Thing That Could Happen to Your Credit in a Divorce?

If more married people knew how badly their finances could be devastated by divorce before they gave up on their marriages, they might think twice about going through with the big split. In a better case scenario, disentangling from one another financially alone could require many years. Risks to credit exist until this financial separation process is finally over. Prospective divorcees need to prepare themselves for the unexpected and unwanted shocks that most always happen in divorce court and afterward so that they are not caught with their proverbial pants down.

Be prepared to ultimately lose in and after divorce court.

The best advice for divorce court is to prepare for the very worst possible financial outcome, so that it is a pleasant surprise if it comes off well or at least better than it might have. Budgeting may be an advisable option for a married couple with two incomes, but it becomes a dire necessity for those about to split into two households. The sad truth is that total costs for the new two households will certainly be increasing after a divorce, and never decreasing.

An all too typical scenario out of divorce court goes like this. The major income-earning spouse has to pay both spousal support and child support. This adds up to a major portion of the income. This new burden is on top of all of the breadwinner's usual life expenses, which means that more money will be necessary in order just to make minimum payments. Before six months have passed, the major-earning spouse has fallen behind on some payments almost for certain. These now-late accounts and eventual defaults crush the person's credit rating. Sadly, poor credit hangs around and affects the victim of it for many years to come.

This is not a hopeless scenario if the spouses are able to cut their expenses back as far as possible before the divorce court hearing happens. It may be best to go ahead and liquidate or sell off any assets before things get really complicated, which will also help both parties to have a better and neater breakaway from the smoldering marriage.

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Ex-spouses may not be able or even willing to carry out the court-appointed financial obligations.

Divorcees must remember that a court order telling a spouse to make payments on certain joint debts certainly does not ensure that he or she will actually carry it out. Accounts in a person's name, whether jointly held with the ex-spouse or not must be paid by the person in whose name they are ultimately. Divorce does not change the creditor contract whatsoever. On joint accounts where the court-ordered spouse does not pay the bills, the credit of both parties will deteriorate rapidly. In most states, bills that default can also lead to lawsuits lodged by the creditors attempting to recover whatever they can from the ruin.

A relatively easy solution is for the other person's name to be removed from any account for which the spouse has to pay the bills. If the spouse will not agree to this, then a close eye must be kept on the bill history and payments. Credit can be protected so long as one spouse or the other pays the bills in the meantime.

Court-ordered support can not be defaulted on as lightly as other bills may.

While it is true that missed and even late payments damage credit, court-ordered support bills that are defaulted on are ruinous. This is because individuals suffer credit score damage and collection attempts for not paying credit card or cell phone bills. Those who do not pay court-ordered support payments on the other hand have their wages garnished, their assets seized, their property liened, their tax return refunds and disability or unemployment payments intercepted, their passport seized, and potentially may even do hard time in prison. This is why it is so critical to go to family court to request a modification of support payment amounts rather than simply skip payments if one is not able to make the court-ordered support payments.

It is important to have at least some individual credit accounts.

Thanks to rules changes to credit procedures affected back in 2013, creditors are now allowed to look at joint income when making individual credit account decisions. The reason that this is so important is that in the fire and smoke of a painful divorce, joint credit accounts are often closed. This could leave one spouse without any credit accounts or credit score.

Joint accounts will still impact credit scores until they finally drop off a report ten years after they are closed. Similarly, joint accounts that are defaulted on and closed will stay on a credit report for a full and painful seven years from the moment the account became late. A good-standing closed account that had some past late payments will show late payments on the history for seven years after the late payments. Everyone should have some credit accounts in just his or her own name.

Reliable documentation could save the loss of major money. 

It is no exaggeration to state that a great number of divorces get ugly. Angry and resentful spouses have often run up new debt on the joint credit accounts or even their partners account to deliberately create financial pain and suffering. Others have even opened up brand new accounts utilizing the spouse's social security number and name. This is especially serious in a community property state like California. Each party will be responsible for 50% of the debt that accrues during the marriage. This also applies to accounts run up in the other spouse's name and accounts that were unknown until the proceedings in divorce court.

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The preparation for this danger is to turn in the necessary paperwork in the town of residence. The split date should be carefully documented. All joint accounts ought to be closed with new individual accounts opened that only the person opening it has access to. Records of every account activity must be scrupulously maintained. Chances are better that the judge will rule in favor of the injured innocent spouse if a paper trail actually exists.

In the end, there is no better defense of a credit history and score than the actions of the person in whose name it is. Once it is crystal-clear the marriage is doomed, it is time to take action. Casual and informal discussions with a spouse and later ex will not save one's credit. There is no substitute for taking care of one's own financial well-being if a split up is imminent.

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Alice Bryant's picture

Alice Bryant is the Editor of Creditnet and a personal finance expert with over a decade of experience writing about credit cards, credit scores, debt repair, and more.

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