An important part of smart divorce planning is keeping your financial future in mind. Whether you are just thinking about divorce or have already decided, remember that a successful and independent financial future depends on a good credit score – and the steps you take now can go a long way in getting you there. Although a divorce on its own won’t affect your credit, any actions you or your spouse take during the process might, so it’s important to resolve and manage your debts properly.
Consider this recent writer to Slate’s Pay Dirt money advice column. Spouse A and Spouse B have made plans to separate. Spouse A noticed that their credit score recently dropped by 100 points, which coincided with them opening a department store credit card that mysteriously disappeared, along with the billing statements.
Spouse A wonders if Spouse B deliberately misplaced the card and/or billing statements in an effort to destroy their credit score, asking, “How do I proceed now? Do I just pay the bill? Do I try to speak to someone? Do I go to a credit bureau to fix things? My husband denies everything, but I do not believe him.”
Slate advises Spouse A to immediately contact the credit company and close the card, as well as reporting any fraudulent charges. Pay Dirt also suggests Spouse A review their credit report (which you can do for free) to find out if there are other reasons for the 100-point drop, and address them before divorce proceedings begin. The column also notes that Spouse A should also have monitored their account a little more closely.
Before signing a divorce agreement, consider the following steps to protect your credit so you can start your post-divorce life feeling financially confident.
Review your credit report
To protect your credit, you need to know what it entails. Reviewing your credit report lets you see all the accounts linked to your profile, and some of those accounts might surprise you if you haven’t checked in a while. You can pull your report from all three major credit bureaus (Experian, Equifax, and TransUnion).
Note the accounts for which you and your spouse share liability, and if you have any credit cards on which your spouse is an authorized user. Also note if you’re an authorized user on any of your spouse’s credit cards. Remove them as a user on your card, and remove yourself as a user on theirs, so their financial activity is no longer reflected on your credit report.
Separate your financial accounts
If you and your spouse have joint credit cards and accounts, consider closing and separating them rather than splitting them between you. You may need to mutually agree on any accumulated rewards or points before closing the accounts. Although sometimes your credit score may take a small hit when you close an account, it does go back up after opening a new one and making on-time, consistent payments. Ensure you monitor your joint account’s activity until it’s closed, watching for any unusual purchases, or recurring payments you may need to move to a new card.
Change your passwords and information
Take some time to update all your passwords, PINs, and security information. Change the passwords to your online banking and financial accounts, as well as the PIN to your debit cards. Don’t forget to change the security questions and answers to those accounts as well, as your spouse can likely guess those answers if they try to “hack” into your online accounts. It is always better to be safe than sorry, as the saying goes.
Think about freezing your credit
In some cases, you may fear your ex-spouse will attempt to open up accounts in your name to deliberately destroy your credit. You can take the precautionary step of freezing your credit, which means that nobody – including you – can open a line of credit in your name for a set period. Many experts recommend keeping your credit frozen permanently and opening it only when you need to apply for credit, then freezing it again after. This helps prevent consumer fraud, as well as protection from potentially financially abusive ex-spouses.
Use your credit cards wisely
Resist the temptation to go on a spending binge courtesy of your spouse’s credit cards during a divorce. Additionally, ensure you continue paying your credit card bills during your separation and divorce, even if you can only afford the minimum payments.
Prepare for the future
To prepare for life after divorce and avoid any further hits to your credit score, create a realistic budget and prioritize your spending. Think about the essentials – food, housing, transportation, the needs of your children. Will you pay or receive alimony or child support? These are essential pieces of your household income. With a clear-cut picture of your future financial needs in mind, you can go into your divorce with a better idea of the goals you wish to achieve.
At McCabe Russell, P.A., our Bethesda divorce attorneys help you through the process with confidence and knowledge. We understand that divorce can be an unsettling time, and want to answer all of your questions and concerns. Talk to one of our experienced attorneys today by calling 443-917-3347 or reaching out to us through our contact form today. We also maintain offices in Fulton, Columbia, and Rockville.