Posted by Mary E. Ramos | Divorce
If you are facing divorce, you likely know that you could potentially be in for a painful and difficult process. Before and during the divorce process, you will have to face the fact that your current way of living is coming to an end, which can take a heavy toll on your mental and emotional health. In addition to this, a divorce can also impact your financial situation in a very negative way. Your credit, in particular, can take a significant hit when you get a divorce.
If your credit score is lowered significantly due to divorce, it can cause financial insecurity in the future, which can make it more difficult to move forward in your new life. You may not be able to get another mortgage, a credit card, or a car loan. To prevent these potentially negative impacts of divorce, below are four ways to protect your credit during the divorce process.
Check Your Credit Report
As soon as possible after divorce proceedings begin, you should obtain a copy of your credit report from one or all three of the major agencies, which include TransUnion, Equifax, and Experian. Once you have obtained the reports, you should then scrutinize them carefully and review every item listed.
Carefully reviewing your credit report can help you find liabilities you may not have otherwise known about. For example, perhaps your spouse used a credit card under your name without your permission or knowledge about it. Knowing about these debts before your divorce is finalized is critical because you can then include them in your divorce settlement and make sure you are not held liable for that debt.
Close All Joint Accounts
You may have joint accounts, such as the home loan or car loan with your spouse. It is important to close these as quickly as possible, while also realizing that you may not be able to close all joint accounts right away. Even if you cannot take your name off a loan or other debt right now, it is important to still take them into account so you can determine how to divide the debts during the divorce process.
The easiest way to avoid mortgage and tax liabilities for the marital home is to sell it and pay off the mortgage with the proceeds. If there are any funds remaining, you can use them to pay off joint debt. If your spouse is insistent about keeping the marital home, you could still be liable for late payments, which will hurt your credit score. Lenders only care about whose name is on the loan, regardless of their change in marital status. It may be possible to refinance a vehicle or home into a spouse’s sole name, so you may want to reach out to your lending company about pre-approval for refinancing.
Apply for a Credit Card Under Your Name Only
Post-divorce, you will have to be prepared for a major lifestyle change. You will have to support yourself, and perhaps your children, on just one income. This can be very difficult particularly if you do not receive child support or spousal support. A credit card can help you bridge the gap if you find yourself having trouble paying for your daily expenses.
When applying for a credit card, you should do so while you are still married, but still get the card in your name only. This will allow you to include your spouse’s income as part of the “household” income, which can improve your chances of being approved for a credit card and increase the overall balance you are approved for.
Of course, if you do not manage your credit card debt properly, your credit score will take a hit. The best advice is to obtain a credit card and use it for small purchases, paying it off every month. This will help increase your credit score, which is particularly useful if other aspects of your divorce case have lowered it.
Create a Budget
Moving forward after divorce, it is critical to create a budget that outlines your income, as well as your future expenses. This is the only way to ensure that you live within your means and that things like debt do not get out of control. You should also speak to a financial planner who can advise on the level of debt you can carry, known as your debt-to-income ratio. If you have current debt that you cannot pay off with a single income, a financial planner can also advise you of the options available that can protect your credit score.
Our Divorce Lawyers in Houston Can Help with All Aspects of Your Case
If you are getting a divorce, our seasoned Houston divorce lawyers at Ramos Law Group, PLLC can advise on all aspects of your case, including how to protect your financial future once you dissolve your marriage. Contact us online to schedule a consultation.
Last Updated on April 21, 2023 by Mary E. Ramos