Protecting Your Credit During and After Divorce

June 29, 2015

Julie (not her recredit scoreal name) was a successful sales executive with responsibility for the western half of the United States. She traveled extensively to call on her clients. Imagine her embarrassment and shock when her credit card was declined upon hotel checkout on one of her trips.

Julie stepped out of line, composed herself, and called Citibank’s customer service line to find out what the problem was. There had to be a mistake because she was fastidious about managing her money and credit.

Julie was informed, “We are sorry, but we have cancelled your credit card (the coveted Citibank AAdvantage card which she used to rack up a gazillion airline miles for free travel) because you are in default on your mortgage (ALSO with Citi) and you are scheduled to be foreclosed next month.”

Julie’s immediate thought was, “But, I don’t have a mortgage with Citibank.” Then she recalled that this was the loan on the house her ex received in their divorce five years earlier. Unfortunately, her divorce decree did not require him to refinance (or sell) the home to remove her from the existing loan.

The next call was to confront the ex. She found out that he had remarried, bought a new home with his new wife and kept the previous home as a rental property. Even though he had paid the mortgage on the home for years, when some financial problems ensued, he basically walked away from the home, letting it go into foreclosure.

timebombThis is what I call the Ticking Time Bomb of Divorce. It is that joint debt assigned to the other party that may be paid on time for years, but when they miss a payment (or 3), YOUR credit is destroyed. And, Julie’s credit WAS destroyed.

As it turned out, Julie was now in a new relationship and they wanted to buy a new house together. Unfortunately, Julie was not able to be on the new loan and we had to qualify her fiancé on his own, which was really stretching it to his absolute limit. Julie’s problems almost cost them the ability to buy their new home together.

The bottom line is that as long as you have open joint debt obligations with your ex, you are still “married” financially to them even though you may be legally divorced. You don’t want this.

Here are five tips to protect yourself during divorce:

  1. Close ALL joint accounts and replace with new individual accounts. Again, the objective here is to be financially divorced, not just legally divorced.
  2. As long as you have joint debt after your divorce that your ex is responsible for paying, you need to invest in a system to monitor your credit.
  3. If the divorce decree awards the marital home to your ex, there should be a requirement for them to refinance the home within a defined period of time to remove you from the existing loan or the home must be sold.
  4. Notify your creditors of how to reach you in the event that payments are late. That way you have an opportunity to save your credit before it goes to collections.
  5. If possible, have the closed joint accounts paid off prior to or as part of the settlement. That way, you don’t have to worry about an ex tanking your credit later.

 

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