Protect Your Credit After a Divorce

As soon as you know that you are possibly getting a divorce, you should pull your individual credit report. “Check your credit a few months after the divorce to be sure it is accurate,” Teresa Mattos, a California Bar certified family practice attorney in Irvine, CA recommends.

Too see where your credit currently stands…

…you can view your free credit report summary at AnnualCreditReport. This report is free, and mandated by the federal government, and you can get one free copy of the credit report every year. From each of the three credit repositories, Equifax, Experian and TransUnion. Some of my business partners like websites like CreditKarma, or you may want to sign up for a credit monitoring service. These other services do cost money, but you can get access to your credit scores and be alerted if something changes your scores.

Getting your name off the deed is easy, in California it is typical that you sign an inter-spousal transfer deed in front of a notary. In my opinion, this is the best way to transfer title because an inter-spousal transfer deed will not change the tax assessor’s valuation of the property. Getting your name off the mortgage, that’s the hard part.

Leaving your name on the mortgage can make it harder, if not impossible, to get a loan for buying your own house. Mortgage lenders want to see 12 months’ worth of payment showing that you are not paying the old mortgage, is you want to get a mortgage on another property. And if the spouse keeping the home doesn’t make all the payments, credit scores are hurt for both spouses.

The biggest mistake…

…is one person takes title, but both still are on the mortgage. That can devastate your credit quickly. In other words, you should get you name off the old mortgage as quickly as possible, either by having the retaining spouse refinancing the mortgage separately, or by selling the house.

How shared accounts get separated

Rules on how to divide joint accounts vary by state, but most places consider debts acquired during the marriage as shared property. It may be a sore subject, but it’s important to make dividing up your debts a priority. Since California is a community property state, look at the codes on the credit report. Typical codes are as follows: B=Borrower, C=Co-Borrower, J=Joint, A=Authorized User, S=Co-signed. If an account shows that you are a co-borrower, joint borrower or a co-signer then to protect yourself, that account should be closed.  After you pull your credit, check what is on your individual report. Contact your financial institutions and close or separate all shared accounts, including credit cards, car loans and mortgages. If you want to keep an account with that institution, then it’s best to open a new account with no connections to your spouse.

You can see how changes are affecting you as time goes on after your separation and if there are any other steps toward improvement that you need to make. You can generally improve your credit in the long-term by making all loan payments on time, keeping debt levels low and limiting new credit inquiries as your score rebounds.

If you don’t, you and your former spouse will continue to be tied together financially. And if an ex-spouse runs up credit card balances and fails to pay or falls behind on a mortgage that still has your name on it, the negative marks will show up on both of your credit reports. I have had clients with joint accounts with their ex and the ex-spouse files for bankruptcy.  My client had a very difficult time explaining how accounts that were on their credit report show as having been part of a bankruptcy.

After closing out all joint credit cards, you can ask each financial institution to re-issue you a card in your name only. You should also refinance joint installment loans such as auto and home loans.

“Be diligent in refinancing debt or selling an asset that has debt against it, and in making certain that any assets get retitled,” Mattos, says.

It could be better…

…to make these decisions between the two of you instead of letting a third party determine your financial future. In the case of a contentious divorce, at a minimum, you should review your credit and asset accounts with your divorce attorney so there is total clarity on what needs to be divided.  Assuming you have joint tax returns, reviewing the past few years should help determine what assets accounts you (as a couple) have, so that you can review the most recent statements.