You Ask, Equifax Answers: How Will a Divorce Affect My Credit?
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- Separating finances during a divorce can be stressful.
- Your individual lines of credit will remain separate when you divorce, but your name will remain on shared credit accounts and loans.
- A divorce attorney can help you understand what debt you have to repay once your divorce is finalized.
Question: My spouse and I are separating after almost 20 years together. How can I expect the divorce to affect my credit history? Are there steps the two of us can take to separate our credit accounts and debts?
When two people build a life together and combine finances for years, trying to separate them can get stressful quickly. When it comes to credit accounts and debt, the impact of a divorce on each of you depends on a few key factors. Remember that a monthly free credit score and Equifax credit report are available to you when you sign up for Equifax Core Credit™. This is a VantageScore® 3.0 credit score based on Equifax data. For a free monthly Equifax credit report and a free monthly VantageScore 3.0 credit score, create a myEquifax account and click "Get my free credit score" on your myEquifax dashboard to enroll in Equifax Core Credit. A VantageScore is one of many types of credit scores.
Of primary consideration: How many joint accounts do you hold with your spouse and in what state do the two of you live? Also, how you managed your finances jointly while you were together might have an impact on your credit history and credit scores.
Shared accounts after divorce
If you kept your finances entirely separate during your marriage, your individual lines of credit will remain separate when you divorce, making it relatively simple to detach your financial lives from one another. However, most couples jointly hold one or more financial accounts, such as a shared credit card or a mortgage. If you're in that majority, your situation may add a layer of complexity when you decide to divorce.
Your divorce decree may dictate who maintains ownership of which accounts following your separation. However, even if your mortgage or another type of a credit account is assigned to your ex, that doesn't mean you're automatically off the hook. Your name will stay on all joint accounts after divorce until you take steps to remove it. Therefore, you'll still have at least partial responsibility for those accounts.
For example, if your ex is making late payments on a shared credit card and your name is still on the account, you have a legal responsibility to make sure those payments are made on time. Even if your ex made all of the charges, your credit scores will likely suffer from a late payment because your name is attached to the account. It's the same scenario if you cosigned a loan together or if you simply became an authorized user on your former spouse's credit cards. As long as your name and Social Security number are still associated with those accounts, any late payments by your ex can drag down your credit scores.
The good news is that you may be able to convert some of these accounts from joint to individual status. Once the conversion is complete, your credit history will no longer be tied to your spouse's financial actions—positive or negative. Talk to your creditors to see what options are available to you.
However, if you do separate your accounts, be prepared for your credit limits to potentially decrease. When you remove an individual from an account, you're also removing their income and credit history, so your creditor may adjust your credit limits accordingly.
If your credit limits are lowered, your credit scores may suffer as well. This is because you are likely altering your debt-to-credit ratio (the amount of debt you carry compared to the total credit available to you). A lower debt-to-credit ratio tends to be better for credit scores. If you currently carry a high balance on one particular card, it may be a good idea to reduce that debt (or pay it off entirely, if possible) before you remove your ex (and their income) from existing accounts.
Debt after divorce
If you or your spouse has debt, you may be wondering what happens after divorce to the money you owe jointly or individually. The answer largely depends on what state you live in.
If you live in what's known as a community property state (Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin), you may be on the hook for debt incurred during marriage, even if it was acquired by your spouse on an individual account. Learn more about community property states and how this may impact you financially during a divorce from IRS Publication 555.
If you instead live in a common law property state (which includes most of the country), you are likely only responsible for debt incurred on shared accounts.
Regardless of your location, you'll want to check with your divorce attorney to understand your unique circumstances and determine what debt you have to repay once your divorce is finalized.