How Can Divorce Impact Your Credit?

A divorce or separation between two people can impact so many aspects of not only one person, but an entire family’s life. When it comes to finances in a soon-to-be ended marriage, the amount of time a couple has been married, the financial responsibilities shared and the amount of debt in total are just some of the factors that should be considered during the process of divorce. Thankfully, marital status isn’t accounted for on a credit report and it’s not factored into your credit score. However, financial complications or confusion that may arise post-divorce could damage your personal credit score.

Often in a marriage, couples are named as joint-owners, cosigners or authorized users of existing accounts that are shared. When a couple decides to file for divorce they’re signing away one of two household incomes, which could cause financial strain, especially if your ex-spouse made more money. If you foresee a divorce taking place in your imminent future, here are three strategies to protect your credit.

1. Deal with joint accounts

Mortgages, credit cards and car loans are all examples of debt that are typically shared in a marriage, and even when a marriage ends, they still need to be paid off. Once you’re divorced, don’t forget that unsecured and/or secured debt exists with your name on the account, or that there’s an asset belonging to you used as collateral. Throughout the legal process, a judge will typically decide who is responsible for paying back each credit account by issuing a divorce decree once the separation is final. Depending on the relationship you have with your ex-spouse and your personal financial situation, divorce decrees are bittersweet. If you have a civil relationship with your former partner and they know that he/she has a good standing credit score and steady income, a divorce decree might be considered fair in your situation. However, a vindictive relationship between two people who are authorized users on each other’s credit accounts could be damaging to your credit score if the credit is mistreated (i.e. late payments, no payments, over-usage of credit, etc.).

The best thing to do when face-to-face with a divorce is to ensure you’re in a good standing relationship with your ex-spouse. If you can both work together to pay off or close existing joints accounts, you’ll both reap the benefits of great credit scores post-divorce. Once your accounts with your ex-spouse are closed, call your credit bureau to confirm that they won’t be opened again. Authorized users on credit accounts should be taken off to minimize the risk of your credit being harmed if the account were opened again. By removing your spouse’s authorized user status, you are disabling their ability to run up an insurmountable balance that they won’t be held directly accountable to.

READ MORE: 5 Factors that Impact Your Credit Score in Canada

2. Reduce expenses and increase income

Focusing on your personal credit during this time is the smartest thing that you can do financially to protect your credit report and score. Living on two incomes is a lot different than just one. Pressure to pay back personal bills, shared bills and still manage to pay for personal things, like a new house or new car, can be stressful to navigate when you’re doing it alone for the first time in a while. Prioritizing your expenses and committing to a budget will help lessen any financial pressure that you might run into.

Your finance profile should be one of your priorities when going through the divorce process. Spending less money is not easy, especially when you’re used to having access to two incomes. Getting back on track financially post-divorce will cushion any financial mishaps that might take place because of the split. Small monthly bills might not seem like a lot at first, but payments accumulated can dent your wallet. Make sure you’re prepared for these transactions by having enough money saved and budgeted for. Options like refinancing your home or vehicle, consolidating your debt, requesting a credit card rate reduction or selling unused items are all great ways to save.

READ MORE: 10 Simple Money-Saving Tips for Canadians

3. Stay on top of your personal credit

After a divorce, your ex-spouse might not care about your financial situation like he/ she once did. Considering this, as the sole proprietor of your personal finances, it’s up to you to ensure that you’re making 100 percent of your monthly payments on time and in full. If you’re authorized on an account that the court assigned to your ex-spouse, make sure that they’re making payments diligently. Stay on track of their payments and account usage. By reducing personal expenses and increasing your income if possible, you’ll be prepared to make any account payments if your ex misses any. For the sake of your credit, you won’t regret it.

The end goal of a divorce, and throughout the entire process, is to remain civil with your former partner. Depending on the circumstance of the divorce, your ex-spouse might be sour or vindictive. We probably all know someone that went through a divorce and has financial baggage. Not only is this stressful on a person’s wallet, but it can also wreak havoc on their personal lives. Although a divorce won’t directly impact your finances, protecting the indirect effects will help you get swiftly back on your feet.