Divorce can be a life-changing event in many ways, and it can have far-reaching impacts beyond the emotional and familial aspects. One area often overlooked is how divorce can affect your credit. While most people are primarily focused on assets and custody, the financial obligations that come with divorce are equally critical.
It’s easy to assume that both parties will stick to the plan once the court has assigned financial responsibilities. Unfortunately, that’s not always the case, and an ex’s failure to honor these commitments can significantly harm your credit score.
Divorce decrees don’t protect you from creditors
Creditors generally operate outside the realm of divorce decrees. If you had a joint account or co-signed a loan during your marriage, the financial institutions still consider both parties responsible for the debt. It doesn’t matter what your divorce agreement dictates. This means that if your ex-spouse fails to pay a bill they were supposed to take care of, the creditor can still go after you to collect. The resulting late fees and damage to your credit history can take years to repair.
Consider selling assets
Selling assets during or after a divorce to cover joint debts is sometimes a good idea. It’s a way to sever financial ties with your ex-spouse as cleanly as possible. This ensures you’re not bound if they fail to uphold their bargain.
Liquidating assets like joint property or investments to pay off debts can protect your credit score from potential harm. By settling debts, you eliminate the risk of an unreliable ex-spouse causing your credit to plummet.
Understanding the potential risks and taking proactive measures can go a long way in safeguarding your financial health during and after a divorce. While it might not prevent all credit-related problems, knowing and taking steps to mitigate risks can minimize the damage.