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How might divorce impact your credit?

On Behalf of | Dec 16, 2023 | Divorce

Divorce is a significant emotional and personal challenge that can have a lasting impact on your credit. Understanding how shared finances, particularly debts, are handled during divorce and how these decisions can affect credit scores is important if your marriage is coming to an end.

When couples decide to part ways, their shared financial responsibilities must be sorted out. This process often involves determining who is responsible for what debts and how the couple’s assets will be divided. These decisions can have long-term effects on the credit score of each spouse independently.

Marital debts are divided along with assets

When dividing property during a divorce, it’s not just the physical and monetary assets that are split. Marital debts are also divided based on various factors, including a couple’s financial situation, earning capacities and the specifics of the marital debts at issue. In many cases, the debts are used to balance out the assets granted to each spouse so that the overall property division order is equitable.

Both parties remain responsible for joint debts

One of the most important aspects of divorce and debt is that both parties remain responsible for joint debts. Creditors don’t have to abide by the terms of the divorce decree because they’re not part of the divorce. As a result, transferring distributed debt to one former spouse’s name or the other is important.

Credit scores can be negatively impacted

Unresolved joint responsibility can significantly affect your credit score. If your ex-partner fails to pay a joint debt, it can negatively impact your credit score. It’s critical to closely monitor all joint accounts and ensure that all payments are made on time, even post- divorce.

Assets can be liquidated to pay off marital debts

Sometimes, liquidating assets is the most viable option for paying off marital debts. This could involve selling shared property, such as a house or car, and using the proceeds to pay off joint debts. This strategy can help prevent future financial complications and protect both parties’ credit scores.

Understanding exactly how the debt division process can impact your financial future is important. Seeking legal guidance proactively can help you to make decisions about these concerns that you feel are in your best interest.