Divorce is not reported on your credit report, so how does it wreck your credit score? It usually happens in one of a few ways.
Many couples have financial problems before they file for divorce. One or both of the spouses may be spending too much, or one of them may have lost a job. If infidelity is one of the causes of the divorce, then there is likely to be extra-marital spending. All of these things can lead to unpaid bills, and unpaid bills are a negative factor that hurts your credit score.
During the divorce you are probably incurring extra expenses. Litigants in divorce have attorney’s fees, court costs, expert fees for counselors and psychologists, accountant’s fees, and other expenses. When couples separate they must support two homes with the same money that was previously spent to support one. It is difficult to cut ordinary expenses enough to find money for all of the new necessities.
It is very common for couples to get behind on their bills during divorce. Getting behind is simply another way of saying that the bill are not paid on time. Late payments are recorded in credit reports, which will result in a lower credit score.
Old credit card debts and joint loans are one of the biggest problems for those who have been through a divorce. In the divorce order the court will distribute assets and liabilities, such as credit card debt. For example, a court may give the wife money in a bank account and order the wife to be responsible for payment of a joint credit card.
The divorce court, however, cannot change the original contract between the husband and the credit card company. If the wife doesn’t pay the debt, the husband is unlikely to know until long after the debt if past due, perhaps even charged off.
If that isn’t bad enough, there are too many angry ex spouses who intentionally use a joint account after the divorce is final. For example, an ex-husband might run up debt on an account that was given to the wife. Even if the court holds him in contempt for violating an order, the ex-wife is still liable to the bank. If the additional debt is very large, she may be unable to afford the payments. All of these are reasons why divorce is a leading cause of bankruptcy.
Caution and Prevention
Divorce is usually a messy affair. Most couples experience intense moments of anger, fear, and loneliness. Many of us are overwhelmed by all of the sudden changes that come with divorce. Personal routines change, new living arrangements, new meal times, and visitation for kids who are also coping with a lot of change.
You can reduce the impact divorce has on your finances with cautious daily management of your affairs. Schedule your bill payments on a calendar. Check your credit report, and keep an eye on bank balances. Make certain you replace any joint accounts you have with a separate account. Write and inform the bank that you are no longer using a joint account awarded to your spouse. While you can’t change your liability for the old debt, you can prevent liability for future debt by giving the proper notice. Use certified mail and keep a copy!