Divorce, Debt and Credit

Dissolving a marriage is never easy – for many reasons, including unraveling your finances and debts. And you may be wondering if a divorce affects your credit reports and credit scores.

First, filing for divorce – or the actual divorce proceedings – will not impact credit reports or credit scores. If you and your former spouse have kept separate finances, you’re likely to see no direct impact on either. But if the two of you have joint accounts, your credit reports and credit scores may be impacted.

Some things to keep in mind:

Understand your divorce decree.  A divorce decree may give your former spouse responsibility for a joint account, but that doesn’t let you off the hook where lenders or creditors are concerned. If your name remains on the account, missed or late payments may impact your credit reports and credit scores. 

Similarly, if you are an authorized user on an account or a cosigner on a loan with your former spouse, consider calling the credit card company or financial institution to find out what options you may have. If you are the primary account holder, it may be possible to convert the account to an individual account, depending on the lender’s policies.

Determine if your state follows community property or equitable distribution rules.  In community property states, property – and debts – acquired during the marriage are owned equally by both spouses. That means if you live in a community property state, you and your spouse may both be responsible for any debt you incurred while you were married. Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska allows parties to opt-in to a community property agreement.

The remaining states are equitable distribution states. This means property – and debts – acquired during the marriage are divided fairly, but not necessarily equally. 

Consider the impact of missed child support payments.  If you are behind in child support payments, this information could be included on your credit reports and may impact credit scores. Unpaid child support, like any negative account, may remain on your credit report for up to seven years. 

During the divorce process, check your credit reports with all three nationwide credit bureaus. This allows you to identify any joint or shared accounts or debts you may need to address, as well as help you determine your individual credit standing. You are entitled to a free copy of your credit report from each of the three nationwide credit bureaus every 12 months by going to www.annualcreditreport.com

Keep in mind your credit limit may decrease. If you’re an authorized user on an account or a joint account holder and your income changes -- for instance, if one person is removed from the account, leaving only your income -- your credit limits may be impacted if a creditor reviews the account. That could affect your debt to credit utilization ratio – the amount of credit you’re using compared to the total amount available to you. This ratio is one factor that impacts credit scores