Divorce and your credit

Litigation

Divorce impacts all aspects of one’s life, both directly and indirectly. One of the indirect consequences is the effect of divorce on one’s credit. This is an indirect effect as one’s credit is not impacted by marital status. There are both negative and potentially positive impacts of divorce on one’s credit.

 

Negative effects of divorce on one’s credit:

  • Failure to pay bills during a pending divorce: Often during a divorce, bills are unpaid. Sometimes this is the result of one spouse being vindictive; other times, one is unable to pay bills due to other obligations. Often the court will order a spouse to pay martial expenses; however, this does not necessarily mean that the expenses will be paid. Despite orders to pay expenses, if one spouse does not pay the bills and they are joint or in the name of the other spouse, the nonpayment will adversely affect one’s credit.
  • Post-divorce, restructuring of financial affairs: Following a divorce, generally, there is a restructuring of one’s financial affairs and this may prevent a spouse from maintaining expenses previously paid. In addition, the expenses associated with a divorce many render a spouse/ex-spouse unable to continue to maintain their expenses. Many spouses are unable to continue to maintain the expenses that they maintained pre-divorce, and others simply become bankrupt post-divorce. In addition, if bills are unpaid during a divorce, it is very difficult to automatically bring them current post-divorce. This often occurs with a delinquency on one’s mortgage. As such, one’s credit will negatively suffer.
  • Spouse’s failure to pay expenses pursuant to Stipulation/Judgment of Divorce: In addition, many divorce agreements/judgments require one spouse to continue to pay the expenses of another. However, this is an agreement between the parties, and the person whose name the debt is in must continue to ensure that the payment is made regardless as to whether or not the spouse is fulfilling their obligation. Failure to do so will result in an adverse impact on one’s credit.

 

Positive effects of divorce on one’s credit:

  • Freedom from spouse with bad credit: Sometimes a person with good credit marries a person with bad credit and the union adversely impacts the credit of both. For some, divorce may mean freedom from a spouse who continually destroys the parties’ credit, both individually and as a couple.
  • Reassessment of expenses, and post-divorce adjustments to lifestyle: Many couples live beyond their means, and the stress and hardship of doing so impacts the marriage and leads to divorce. Splitting the liabilities in some instances will reduce the stress on the spouses and may make the payment more manageable. Also, post-divorce, many reassess their lifestyle and make appropriate adjustments to live within their means. This would be a positive aspect of divorce on one’s credit.
  • More access to money to pay expenses: Divorce at times gives a less-monied spouse access to more money than they had during the viability of the marriage. This gives rise to freedom to conduct one’s financial affairs and can have a positive impact on one’s credit.

Posted by Elaine Colavito