As an Orlando divorce attorney I see the effects of decisions made by one or both spouses in anticipation of divorce and during the divorce process that impact their credit long term (opening new credit accounts, not paying existing debt, or creating credit accounts in their spouse’s name). I have seen some clients properly manage and take the necessary steps to support their credit status, while others in nearly the same situation suffer unnecessary consequences of ignoring the importance of protecting their credit.
Credit impacts almost everyone these days and regardless of your financial status or state of employment the choices made during divorce can impact your credit. In turn, your credit directly impacts other aspects of your everyday life for years to come.
For example, many employers now check credit as part of pre-employment screenings and in some roles, monitor it continuously; Insurance companies may give preferred pricing to those with better scores; and of course, if you want to buy a car, house, or get a new credit card, you can be sure they’ll check your credit report!
For small business owners, your credit may be critical to the survival of your business and livelihood. There could be consequences form vendors, landlords or partners when your credit is mismanaged.
Here are some things to keep in mind about your credit if you are going through a divorce:
- Be informed. Many people “think” they know their credit status, but really don’t. If you have not seen your credit report recently, get a copy. There are three main credit reporting agencies: Equifax (www.Equifax.com), Experian (www.Experian.com) and TransUnion (www.TransUnion.com). See the next bullet point below about how to get a copy for free.
- You are Entitled to A Free Report: Pursuant to federal law (The Fair Credit Reporting Act 15 USC1681) you are entitled to receive copies of your credit report from each of the above three (3) reporting agencies once per year for free. Here is the government sponsored website you can request your free credit report from www.AnnualCreditReport.com. This link can also be found on our website under helpful links. Be careful when using credit report websites, especially those that market themselves as “free” credit check websites because many have hidden fees or charges!
- Monitor your credit regularly. At a minimum, consider staggering your reviews of these three reporting agencies so you check one agency every four (4) months at no cost using the method I mentioned above. Get your reports more frequently if you suspect a problem may develop.
- Closing and Opening Accounts Can Impact Your Score. During a divorce you may find it necessary to close joint credit accounts and open new credit accounts. Often this is necessary and a good idea, but be aware that closing old or opening new accounts can lead to lower credit scores in the short term. This will improve again as time passes, but be aware of these decisions especially if you expect to use your credit score during or shortly after a divorce.
- Cancel abused accounts immediately. If unauthorized charges appear on one of your accounts, immediately call the creditor and close the account. If you need the account, ask your creditor to provide you with a new account number.
- Consider Credit Impacts. During divorce consider the impacts to your credit as some decisions may impact you for a long time. For example, if you agree to sign over title to a home during divorce, but remain a named party on the mortgage, your credit will be impacted by the payment history of the party paying the mortgage until your name is removed or the mortgage is paid.
- Be aware of the missing bills. Make a list of all bills to be paid monthly, quarterly, annually and make sure you are aware if you don’t get your bill. Contact the vendor immediately if you didn’t receive an expected bill time.
- Freezing Your Credit: If you don’t expect to need your credit score to get a loan, a line of credit, or make a large purchase, consider freezing your credit. It is free (though there is a sometimes a small charge of $10 or so to unfreeze it) and is essentially 100% effective in preventing the opening of new accounts. A good resource to learn about freezing credit is from consumer advocate Clark Howard. This is critical if you suspect someone you know may try to harm your credit by opening new accounts.
- Vengeful Spouses can Ruin your Credit. Your spouse usually knows everything about you. Your name, address, social security number, your mother’s maiden name, etc; everything someone can use to establish credit in your name. I have seen far too many angry, emotional spouses before and during divorce take steps to deliberately ruin the other partner’s credit. They do things such as making unauthorized charges, opening lines of credit in their spouse’s name, closing accounts, changing addresses on bank accounts, credit cards or licenses, deliberately missing payments, etc. First of all, understand that while divorce can be emotional at times, never let these emotions cause you to act out in a way that only serves to harm the other party. I can say that in every case I have dealt with such vengeful acts, they end up hurting both partners, delay meaningful negotiation and add unnecessary expenses to the divorce process by causing the attorneys from both sides to get involved in matters which are completely unnecessary.
- Separating Bank Accounts. If you and your spouse create separate bank accounts instead of joint accounts, be sure it is done with the knowledge of the other spouse and that only half of the funds are removed from joint accounts unless prior agreement of the other party has been gained. Money in a bank account qualifies as a marital asset subject to equitable distribution under the law and should be treated as such.
“One of the best things you can do during divorce is create a budget.”
- Creating a Budget. Divorce is a transition in which you should develop a clear understanding of your available income to spend and ongoing expenses. One of the best things you can do during divorce is create a budget. Two actually, one budget during the transition time and another to estimate what you expect your income and expenses to be after the divorce is finalized. This will help you be realistic about financial matters and keep from damaging credit by missing payments or incurring unnecessary debt.
- Better Credit Can Give You More Options During Divorce. Maintaining the best credit score you can during divorce can sometimes mean more options to you. A party who wants to keep a car or a house for example, is in a much better position to negotiate what they want if their credit indicates they are likely to be approved for a purchase or refinance.
The important thing to remember is that you and your spouse entered into the personal equivalent of a business partnership when you got married, and in general, every asset or liability that is generated during the marriage is an asset or liability of the whole. This is true regardless of who generates the asset or who creates the debt. It is best if you and your spouse can work together to transition the financial part of your relationship in a way that is as beneficial as possible for you and your entire family.
Other resources on our website include more information about Orlando divorce, more details about our firm and our attorney’s, and helpful family law resource links to other websites. For specific questions or concerns or to set an appointment to speak about your situation in detail, please contact us.