We asked Ian Lyngklip, of Lyngklip and Associates, Consumer Law Center, to weigh in on how you can protect and/or repair your credit after divorce. Read Ian’s guest blog below!
Most people think that divorce is the end of their relationship with their spouse. I hate to be the bearer of bad news, but that’s not necessarily true. In fact, divorce can be just the beginning of what is a long and difficult battle to reclaim your credit and your personal financial identity. But, with proper planning, you set yourself on a path towards financial independence and a strong personal credit history.
First, keep in mind that when you receive your final decree of divorce, where a judge lays out “you owe this, you pay that” – that decree has no effect on the credit card or mortgage companies that have lent you money. Those creditors are not involved in your divorce, and they have no duty to follow the judge’s orders. As far as those companies are concerned, you are still on the hook for every piece of credit that you signed for before you got that divorce, even if the judge assigned responsibility for that debt to your spouse.
Second, know that identity theft is actually quite common after a divorce. Particularly when there’s a spouse who’s not happy with the final decree of divorce, who thinks they didn’t get enough in the settlement, doesn’t like the custody arrangements, or has any number of other grievances. Your spouse has access to your personal information – more so than anybody else – so, they’re in a unique position to be able to steal your identity.
This shouldn’t scare you, but you should prepare yourself. If you plan properly, you can avoid the worst-case scenario and keep your credit in good standing afterward. I am going to put this straight to you: it will take time and effort to go through this process. More importantly, you are the only person who can take many of the steps outlined below. But what you do now will set you off on a positive direction.
1. Create a file to track your credit.
Before you file for divorce, make a folder to organize all financial documents related to your credit. Include copies of all your most recent credit card bills, mortgage statements, insurance bills, and copies of statements from any other recurring accounts and bills that you have outstanding.
Along with this, you’ll want copies of statements from bank accounts, investment accounts, checking accounts – any that are jointly in your names and any that are in your name alone. If you’re starting this process amicably with your ex, get them to do the same thing, before divorce proceedings start.
2. Get a copy of your credit report.
By law, you are entitled to a free copy of your credit report every year, by Federal Law, from each of the three major credit reporting agencies. You can do this by visiting AnnualCreditReport.com, the only site authorized by the federal government to provide this information for free. You can also find a number of free resources, including templates for letters requesting your credit report from the major reporting agencies, here on my website.
It is important to request a report from each of the major credit bureaus, Equifax, Experian and TransUnion as you may find different items reported by each agency.
You should also ask your spouse to do this. But remember: you are not allowed to access their credit report. Those credit reports will identify for you all the credit accounts you have outstanding. That list might differ somewhat from the statements already in the credit file you’ve created. You’ll see accounts you thought were closed but that have not been closed. You may also see on the inquiry log a list of inquiries from debt collectors and other companies looking to collect money from you. That gives you an idea there may be more debt out there than you thought. It’s very important to get your credit report, so you can get a full picture of the debts owed by you and your spouse jointly.
There is another type of credit report you should also obtain. A specialty credit report covers banking and checking accounts. The companies that issue these reports have that reporting information available from almost every major bank in the country. The importance of this is that you can immediately see all the banking assets that exist in your name and in your spouse’s name.
By the time you’re done with this step, you’ll have a very complete picture of all the debts and many of the the assets of the marital estate.
3. Close off existing joint accounts to new charges.
Before you start the divorce process, close off any existing accounts to new charges. You do not want to be in a position where you must continue to be responsible for your spouse’s debts after divorce proceedings have begun. You may not be able to close the accounts fully because first you need to pay them off – which you will want to do with funds from the marital estate. But, you can close them off to new charges.
Close off your accounts in writing. Keep a copy of each letter you send in your credit file. Make sure you also get a response letter back from the company acknowledging that your account is closed to new charges, indicating your current balance. Be persistent in getting that response. Without that, it’s a possibility that you could be hit later on for charges incurred by your spouse on a joint account – and you don’t want to have that happen.
4. To the extent possible, close and discharge any joint debt you have with your spouse.
Any joint credit cards you share with your ex, you want to share marital estate assets to pay those off and shut them down. And, make sure they’re closed in good standing. If you can’t close those accounts off, you’ll continue to be responsible for any joint debt that you agreed to with your spouse – that includes credit cards, mortgages, checking accounts, car loans and more. After the divorce, you don’t want your ex to maintain any kind of control over your financial freedom after that divorce process begins. This is the way to do it: pay off those accounts now, with marital assets, to the extent that you can. I understand that marital assets do not always stretch to pay off all the debts. However, in many cases, refinancing options are available so that joint debts can be paid and a new line of credit opened solely in the responsible parties’ names. If at all possible, use these assets to help make a clean financial break with your spouse.
5. Update credit reporting agencies and creditors with your new name, address and relationship status.
Notify all of the credit reporting agencies and all of your creditors of you new marital status, your new name, your new address, and that you will no longer be responsible for any new charges on the accounts you have closed. Be sure to identify any of the accounts that you have closed to new charges. And, make sure you keep a copy of this letter with your credit file. In the future, if there are any problems with your credit report or items that pop up on your credit report that show joint responsibility, you’ll have the documentation you need to show that you’ve already notified the credit bureaus of your new address and status.
As you move forward, if you were not able to pay off joint debts with your spouse before your divorce was finalized, you’ll want to continue to know – and have notice – if your spouse is continuing to pay that mortgage or that credit card bill. The only way to do that is to make sure these creditors have your new address moving forward.
6. After your divorce, monitor your credit reports.
After your divorce is finalized, you’re going to want to monitor your credit reports and the accounts in those reports that were joint accounts. You can do this by pulling your credit reports annually. You’ll want to make sure that if the final divorce decree assigned responsibility to your ex for a debt that was jointly held – a mortgage, car payment, credit card – that they are paying that debt on time.
If they aren’t paying on time, and it’s a jointly held account, your credit will be impacted. You may end up paying higher credit card rates, lose insurance or lose a job opportunity because of the adverse credit reporting information. If your spouse has been assigned responsibility in the divorce decree, as soon as you know they are not paying a credit card or mortgage on time, you can bring that back to the judge and ask the judge to force them to do this. You can also ask for damages at that point, for the damage to your credit report.
That’s why it’s important to monitor your credit reports: if you don’t know what’s happening, you can’t get help from the court.
7. Stop prescreened offers of credit and request a credit freeze.
Those prescreened offers of credit that land in your mailbox can be too tempting to an ex spouse who may get his or her hands on it to falsely open a new line of credit in your name. Prevent this by opting out of prescreened offers of credit. You can find the form to do this here on my website. You may also consider requesting that each of the credit bureaus freeze your credit. That freeze will prevent potential creditors from accessing your report to issue new credit. When you place a freeze, the credit bureaus will lock down your credit reports unless you unlock the report. These freezes will prevent you from receiving “point of sale credit” like a store credit care that you might apply for at a cash register. While this may be an inconvenience, it will also make any identity theft very difficult.
8. If your ex isn’t paying on a joint account in time, you should.
This isn’t the most popular advice I give, but look: A derogatory mark on your credit report will stay with you for seven years, and can cost you thousands of dollars. You don’t want to suffer a ding on your credit report just because your spouse has refused to pay a bill that you jointly owe. You remain responsible for payments on any jointly held accounts in the eyes of creditors and the credit monitoring system, so make sure you’re monitoring those jointly held accounts – and take action, if necessary.