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How Divorce Affects Your Credit

Apr 14, 2008
"It will never happen." Most people belief this but it's probably worth knowing how a divorce might affect your credit. Consider this an intellectual exercise, or useful information that you can pass on to your family & friends.

Marriage is a merging of two lives; divorce is when you separate those two lives. This is not a small task. Depending on how long you've been together, you may have to unwind a really messy ball of twine. If you find yourself faced with this task, one of the things you need to remember is your credit. A known fact is, divorce and credit don't mix well. The most important thing you can do is try to keep the lines of communication open but the sad truth is, both could suffer if things go awry. While in most cases you both won't want to talk to each other but you owe it to yourselves to clear things up correctly.

If both parties decide to call the whole thing off, you need to diligently manage all of the existing debts from your marriage. There is an easy way or a hard way to do this. The easy way would be to openly communicate and agree on how things will be settled. The hard way is to play hardball with each other. Of course, this is a really difficult time emotionally and it may not be easy to keep emotions out of any financial discussions. Furthermore, your ex may not make that possible at all. However, you need to make sure things are handled properly and ensure everything gets done correctly.

During or before the divorce proceedings, you should figure out who will be responsible for which debts. You can do this any way you like. The most important thing is that everybody knows what it is they need to take care of. When it comes to dividing up debts, it is a good idea to make the user of the asset the responsible party. IE, suppose you have a home mortgage and an auto loan. So in that case whoever will live in the house should take care of the home mortgage. Whoever will drive the car should take care of the auto loan.

By having the asset user make the payments, you make them the responsible party and they will have an incentive to keep the debt current. If you have a nasty divorce, and you're suppose to make the payments on your spouse's automobile, it can be tempting to withhold payments and wait for the car to get repossessed. Of course, this strategy would damage your credit, though it might be rewarding emotionally.

"Different states have different ways of handling assignment of debts. If you are going through a divorce, it is imperative that you consult with a qualified attorney who knows your state laws. You may be very surprised at how debts are handled and how they affect support payments and asset divisions".

After you have decided who will pay for each of the debts, update the accounts. If you will continue to live in the house and make the mortgage payments, you should be the only one on the mortgage loan. To accomplish this, you can call your lender and ask to have your ex removed from the loan, It may be necessary to refinance the loan, essentially replacing it with a brand new loan. This takes time and money, but you will get both closure and a reduced risk for all parties involved. If there are monetary expenses, figure those into the total divorce settlement. Nobody has to win or lose: you just need to tidy things up.

If you must go through a divorce, hopefully it will be as easy as possible. Ideally, you will come to agreements smoothly and quickly. However, it doesn't always work out that way. If there is any tension in a divorce, you need to be on the lookout for potential dangers to you own credit.
About the Author
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