Getting a divorce in New York can wreak havoc on a person’s credit score, but there are ways to prevent this from happening.
Filing for divorce and undergoing the divorce process can have an effect on everything from a person’s home and family to his or her personal finances. One important impact to understand is what divorce can do to a person’s credit score. A March 2015 press release published by Edmunds.com referenced a study of 526 divorced adults, and it concluded “31 percent suffered a credit score drop following the break-up of their marriage.”
This study’s sobering results were an example of how unwittingly unprepared couples can be when they start to go through the divorce process. So we decided to take a look at ways people can protect and raise their credit scores after a divorce through smart financial decisions.
In many marriages, one spouse provides the primary/majority of income for the household. When that couple goes through a divorce, one spouse can be left with a serious financial disadvantage. We see clients whose spouse stops paying bills, or who are left without a major source of income. This may lead to a mortgage default or even foreclosure. It can also affect their ability to find a new home, get good interest rates on credit cards, or even find a new job. Oftentimes your credit score is the way companies judge your financial ability, particularly in a job with fiduciary responsibilities and a negative score can have serious consequences.
Fortunately, there are ways to protect a credit score when undergoing a divorce. One way is to establish new credit in healthy ways. A person can close joint accounts held with a spouse and open new ones. Doing this will help their credit score start reflecting their own financial activity and not the joint activity they once shared with a spouse. It is important to note that closing accounts can have a temporary negative effect on a person’s credit score, but re-establishing credit and paying bills promptly will bring it back up. Rebuilding credit after divorce is similar to rebuilding credit after bankruptcy; you should start by requesting your credit reports from the three major credit bureaus. This will help you see all the accounts held in your name, and which ones you should close or monitor.
Another preventative step people can take during the divorce process is to organize personal finances. This tactic is especially important for people who were not the primary provider of income during the marriage. Organizing finances can include creating a list of all credit, savings, and investment accounts and their amounts, from IRA’s and 401Ks to debts owed. It’s also beneficial to contact credit card companies to let them know of the impending divorce and ask for a new credit card with your name on it as the sole cardholder. Knowing about all debts and assets will help prevent falling behind on payments and offer a chance to make any necessary updates.
This step also brings up the significance of working closely with a divorce lawyer who has experience in matrimonial law and domestic relations. This background means the divorce attorney can help issue a letter to credit card companies requesting that a person’s name be removed from joint accounts as an authorized user, or to close them all together. A family law attorney in New York will know ways to protect a client’s financial health during and after a divorce, especially if unforeseen situations arise. Let’s say one spouse stops paying bills. The other spouse’s attorney can help schedule an emergency hearing with a judge to order the continuance of payments throughout the pendency of the divorce action. Staying on top assets and debts, especially those that are shared, can help prevent late payments and harmful fees that will impact credit scores.