It’s a well-worn statistic that fighting about money ranks among the leading causes of divorce. Likewise, fighting about your divorce can be the leading cause of financial stress in your life.
Ending a marriage has several financial consequences, from paying lawyers to splitting assets and selling the family home, and this trickles all the way down to your credit score.
To be clear, marital status itself doesn’t directly affect your credit score—credit bureaus don’t factor in whether you’re married, single, divorced or widowed, what your sexual orientation is, or if you have alimony or child support obligations. It’s the financial strain that accompanies divorce that can lead to money problems and end up negatively affecting your score.
If you’re getting divorced, your credit score might be the last thing on your mind. But to secure a sound financial footing for the next stage of your life, there are several steps you should take to protect yourself from the financial effects of divorce.
Deal with joint debts first
Like marital assets, marital debt is generally split evenly during a divorce. But before filing anything, take stock of your joint accounts and debts by ordering a copy of your credit report. This is an important step because it might reveal accounts you didn’t know about.
Unless you enjoy giving money to lawyers, it’s in both of your best interests to decide amongst yourselves who is responsible for paying what debts. Close all joint accounts, and have any outstanding loans that your ex is responsible for refinanced under their own name—refinancing is the only way to take your name off an outstanding loan.
Here’s why: Even if your divorce settlement deems your ex is responsible for paying certain debts, you will still be held responsible if your name is on the loan and your former spouse doesn’t pay or declares bankruptcy. Payment history and debt levels are the two biggest factors that affect your credit score, so this has the most potential to cause damage. Because of this, lawyers recommend paying off as much debt as possible before filing for divorce to minimize liabilities.
If your ex is responsible for paying loans that still have your name attached, talk to your lawyer during negotiations about adding an indemnity clause to your settlement. This lets you take your former spouse to court if they default on the loan and you end up paying it, and gives you gives you means to have the bad debt removed from your credit report.
Adjust your lifestyle to your reduced income
Unfortunately, even the most amicable divorces can be financially draining. If you’re going from having two household incomes to one, you probably can’t afford to maintain the same lifestyle.
You’ll need to start by creating a budget based solely on your own income—even if you’re owed alimony or child support, you shouldn’t rely on it. Evaluate your expenses and discretionary spending and look for things you can reduce, such as cable, internet and cell phone bills, insurance premiums, and grocery bills, and things you’ll have to temporarily cut completely, such as dining out. To keep your credit score intact, prioritize paying your bills and making payments on loans.
Stay on top of payments
Besides keeping on top of your own debt payments, you should keep track of any debts in your name that your ex is responsible for paying. Write the due dates in a calendar and check for payments as they approach. If your ex isn’t paying and you end up making a few payments yourself to protect your credit score, per the indemnity clause, you can ask a judge to have your ex-spouse repay you.
Even if your ex-spouse is trustworthy, don’t just assume they’re making the payments—divorce requires documenting everything, and you should get hard confirmation that a debt with your name attached is being repaid.