Jenkintown Divorce Attorney • Marital Debt
While divorce alone does not affect your credit score, there are a number of financial and legal issues involved that can. First, if you and your spouse have joint credit cards, co-signed loans, or opened a line of credit together, you are both responsible for them. Here, it’s important to remember that the terms of your divorce settlement are not binding on your creditors. This means that if your spouse agrees to pay off debt on a jointly held credit card but fails to do so, the credit card company can initiate collection actions against you.
Secondly, suppose your soon-to-be ex-spouse continues to use the Discover card both of you opened years ago when you were first married – maybe he or she insists they need it to pay for things until the divorce is finalized. Assume further, however, that your soon-to-be ex is delinquent or late on the card’s monthly payments. Even if you don’t use the card anymore, as long as your name is on the account the late and missed payments will appear on your credit history as well.
In this way, divorce can affect your credit if you fail to take preventative steps up front to avoid having your name on what had at one time been joint lines of credit.
Mortgage Payments and the House
If you’re like most couples, both you and your spouse’s names are on your mortgage. Consequently, both of you are financially responsible for keeping current on mortgage payments. If you agree to let your soon-to-be ex stay in the house, you will still be responsible for mortgage payments until your name is removed from the loan. In order to remove your name from the loan, your spouse would essentially have to refinance the house – something your bank may not agree to given the loss of household income after your divorce.
Additionally, if the court believes it is best for your ex to stay in the home until your children are grown. If this is the case, you can be held financially responsible for mortgage payments even if your ex is supposed to help with the payments. This, too, can adversely affect your credit score. For these reasons, it may be best to sell the house and divide the proceeds between you and your ex.
Cancelling Credit Cards during Divorce – What to Expect
In order to avoid potential problems with jointly held credit card debt, it may be tempting to simply cancel the credit cards in question. Here, it’s important to keep in mind that your credit score is in part of a function of your debt to credit ratio. So, if you have five credit cards with a $2,000 limit on each, you have $10,000 in credit to $0 in debt. Now, assume you have $4,000 on two of your cards. Your debt to credit ratio would be $4,000 (in debt) to $10,000 (in credit).
If you cancelled two of your cards that didn’t have any debt on them, your debt to credit ratio would skyrocket to $4,000 to $6,000 – a 2/3 ratio as opposed to a 2/5 ratio. As a consequence of cancelling these credit cards, your credit score would go down.
Contact Jenkintown Divorce Lawyer Joanne Kleiner Today
The financial consequences of divorce can be subtle and unexpected if you’re not familiar with the numerous issues that are involved in divorce. To learn how we can help you protect your financial interests and credit score during divorce, contact family law attorney Joanne Kleiner today.