Credit Scores And Divorce

April 18, 2022

Credit Scores And Divorce

Divorce often has major financial implications for both spouses, including significant changes in household income, expenses, and how much each spouse has left for savings each month. While divorce may not affect a credit score directly, these divorce-related financial changes certainly can. This is why individuals going through the process of divorce or who have been recently divorced should be aware of the relationship between credit scores and divorce, along with all other potential financial ramifications related to the divorce.

At the Johnson Law Group, our team of Denver divorce lawyers is dedicated to guiding our clients through each step of the divorce process and working tirelessly to represent their financial and legal interests. For more information about how a divorce can affect you financially or any other family law matters, contact our law firm today at (720) 463-4333.

Shared Credit Card Accounts

Spouses often have credit cards that they both use. Most of the time, only one spouse’s name will be listed as the owner of the account, but the other spouse will be listed as an authorized user. The majority of large credit card companies do not have the option for an actual jointly-owned account. However, a shared account with one owner and one authorized user can still cause problems for divorcees.

For more divorcing couples, it will be mutually beneficial to work together towards paying off these accounts, as this will help keep both credit scores intact. Of course, not all divorces are amicable enough for this to be an option. Divorcees who are not able to work with their ex-spouse towards paying off the account should remove their name from all of the accounts that were shared during the marriage. Additionally, it is wise to remove your spouse as an authorized user for any accounts you own either during or after your divorce.

What Happens to Jointly Held Debt After a Divorce?

Jointly held debts like car loans and mortgages can be difficult to handle during a divorce. Removing one spouse’s name from these types of loans may be challenging. Even though divorce decrees usually specify which spouse is responsible for the debt, these lenders consider both spouses liable for paying off the loan. According to the Consumer Financial Protection Bureau, creditors are legally allowed to contact a divorced spouse if their name remains on the debt or loan agreement. Missed and late payments from one spouse could significantly damage the other spouse’s credit score, assuming the names of both spouses are still listed on the loan.

Refinancing is the best way to avoid credit score damage caused by jointly held debts. The spouse who will have the responsibility for repaying the debt must be the one who refinances the account. During this process, the other spouse can be removed from the loan. This process is relatively straightforward for car loans, as the owner will continue paying for their car loan on an account that bears their name only. However, refinancing a mortgage is much more complicated, and the divorce court may order that the house be sold if neither spouse will accept full responsibility for the debt.

Colorado Law Regarding Marital Debt

Colorado is an equitable distribution divorce state, as outlined in Title 14 of the Colorado Revised Statutes 2018. This means that the division of both assets and debts will be decided based on what the court deems equitable based on the circumstances. For example, if one spouse owns a car with only their name on the title, they would likely assume full responsibility for that debt after the divorce.

How Changes in Income Can Affect a Credit Score

In most divorces, the most significant financial implication is going from a two-income to one-income household. In marriages with two income earners, this can represent a massive drop in yearly income. Credit card companies will not lower a credit score just because the card owner’s income decreased. However, the change in income can indirectly affect a credit score if the account owner fails to make payments or makes late payments due to their lower income. This is one of the most potentially damaging consequences concerning credit scores and divorce.

Alimony and child support may help ease these new financial burdens in some divorces, but some people going through divorces may still fall behind on credit card payments even with these supports. In some cases, hiring a Denver divorce attorney who understands how to protect the financial interests of their clients may be beneficial. At the Johnson Law Group, we strive to help our clients secure divorce decrees that serve their financial and legal interests.

Protecting a Credit Score After Divorce

There are a few preventative measures that can help protect a credit score during and following a divorce:

  • Close joint accounts and accounts with an ex-spouse as an authorized user as soon as possible.
  • Request a credit report from an official credit institution. This import will include all debts, everything that has been reported, and whether the former spouse has fallen behind on payments for joint accounts.
  • An indemnity clause can be added to the divorce agreement, which will specify which spouse is responsible for specific debts. If that spouse fails to pay a debt listed under their name, their ex-spouse could file a lawsuit.

Rebuilding a Low Credit Score After Divorce

In some marriages, one partner suffers serious credit score damage due to the poor credit practices of their spouse. When this type of marriage ends, it will take time to rebuild the damaged credit score. However, consistent adherence to responsible credit account ownership will ensure that the credit score is eventually repaired.

Some simple ways to repair a damaged credit score after a divorce include:

  • Consistently making payments on time, even if it is only possible to pay the minimum.
  • Making additional payments throughout the month when possible.
  • Opening a new individual credit account.
  • Keeping debt to a minimum.

Contact a Denver Divorce Attorney For More Information on Credit Scores and Divorce

A divorce has the potential to cause serious financial difficulties, so preparing for these potential financial implications is vital. Many people who are going through a divorce decide to hire an experienced divorce attorney who can work towards arriving at a divorce agreement that protects their clients legally and financially. Additionally, divorce attorneys can help their clients resolve legal disputes following the divorce, such as a spouse failing to pay a debt that they are legally liable for. To learn more about the relationship between credit scores and divorce and other divorce-related concerns, contact the Johnson Law Group today at (720) 463-4333.

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