How to Protect Your Credit During a Divorce

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If you're going through a divorce, protecting your credit might be low on your list of priorities. But while divorce won't affect your credit directly, missed payments on joint accounts can negatively impact your credit history and score.

Taking steps to protect your credit is a wise precaution in any scenario, but it can be particularly important during major life events. Read on for practical tips on safeguarding your credit during and after a divorce.

Table of contents

• Understand your state's property laws
• Check your credit report
• Separate all joint accounts
• Consider a credit freeze
• Monitor your credit

1. Understand your state's property laws

Understanding how your state handles property and debts can help you protect your financial health and credit score. All states primarily follow one of two legal frameworks for dividing property and debts during divorce proceedings:

• Community property states: In these states, assets and debts acquired during the marriage are considered joint property or liabilities owned equally by both partners.
• Equitable distribution states: In these states, assets and debts acquired during the marriage are divided equitably (as opposed to equally) between spouses based on income, property ownership and contribution to the debt.

Other states follow common law principles, where assets and debts are owned by the person who obtained them unless they are specifically designated as joint, or as combinations of frameworks listed above.

To navigate these complexities and minimize the impact of joint debts on your credit, consult a qualified divorce attorney in your state. They can advise you on state-specific laws and help negotiate a settlement that protects your financial interests.

2. Check your credit reports

While credit reports and scores are individual, joint credit accounts with your ex-spouse can impact your credit scores if one of you misses payments or applies for new credit.

Check your credit reports if you need help determining which accounts are under your name. You can get a free weekly copy of your credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — through Annualcreditreport.com.

Monitoring your credit by regularly checking your reports allows you to catch any issues early. If you find any incorrect negative items, you can dispute them directly with the corresponding bureau. However, be aware that accurate negative marks, such as missed payments or defaults, may remain on your report for up to seven years (and even longer for Chapter 7 bankruptcy).

3. Separate all joint accounts

Seek to close all joint credit accounts, even if your divorce decree establishes responsibility for specific debts. This can help you prevent future disputes and credit issues if one of you fails to meet your obligations.

Credit cards

To remove your former partner from a joint credit card, you must both agree to close the account after paying off or transferring any outstanding balance to credit cards you own separately. If you're an authorized user on their account or vice versa, the process is as simple as removing the authorized user status through the credit card issuer.

Note that closing a credit card account without paying off the balance doesn't eliminate your obligation to repay the debt. Moreover, it may increase your credit utilization ratio, a crucial factor in calculating your credit score.

Mortgages

If you bought a home with your former spouse — that is, both your names are on the deed — both of you will continue to be responsible for repaying the mortgage.

There are several ways you can separate a joint mortgage:

Sell the property and divide the profits

This is an option even if the loan isn't paid off. If the sales price exceeds what you owe, you can use the surplus to settle the mortgage and associated costs (interest, fees and any penalties).

Your mortgage balance may not reflect everything you owe, so be sure to request a payoff quote or statement from your lender.

Buy out the other party

If one of you wishes to remain in the property, that person has the option to buy out their former spouse's share in the home. This involves negotiating a price based on a professional appraisal, the current market value of the home and each spouse's initial investment.

The person who wishes to remain in the home may need to refinance the loan to finalize the transfer of ownership and remove the former spouse’s name from the mortgage agreement.

Transfer the mortgage

Another option is an assumption agreement, where one party transfers the mortgage to the other, allowing them to take over payments under the existing loan terms. Note, however, that conventional loans generally cannot be transferred — FHA, VA and USDA loans, on the other hand, could be. The person assuming the mortgage must also have a good credit score and meet other lender requirements.

Lastly, note that being listed on the mortgage agreement doesn't mean the property is in your name. Whoever assumes responsibility for the mortgage should transfer the property title to their name at the county register of deeds office.

Car loans and other types of joint accounts

The same principle applies to other cosigned loans, like car loans. As with mortgages, joint auto loans can severely affect your credit if either party fails to make payments or defaults on the loan.

To address this, you can sell the vehicle or refinance the loan under one name. If the car is officially awarded to one person and the loan is refinanced solely in their name, a title transfer would be required to update the ownership records. Alternatively, the court may decide who keeps the car, and that person may be required to set up automatic payments to avoid late payments.

You should also seek to disentangle joint personal loans, credit lines or student loans in which one of you is a cosigner. In the case of joint bank accounts, it might fall to the court to decide how those assets should be divided.

4. Consider a credit freeze

Deciding whether to freeze your credit during a divorce largely depends on whether you have joint accounts that you cannot separate immediately. A credit freeze will prevent creditors from pulling your credit report to open new accounts under your name without your consent.

Just keep in mind that credit reporting agencies can still access your report for non-credit-related inquiries. For example, your reports may be accessed to verify your identity, comply with a court order, or for insurance, employment or housing purposes.

Once you place a credit freeze, it will remain in place indefinitely until you lift it. You can "thaw" your credit anytime. You can choose to lift the freeze either permanently or temporarily. If you opt for a temporary thaw, your reports will be refrozen on the date you specify.

5. Monitor your credit

Even if you separated your finances during the divorce, it’s important to continue to monitor your credit reports regularly and check for any accounts you don’t recognize. Credit monitoring services may be a good option, as they’ll alert you if anyone tries to open an account using your personal information. Some of these services are free, while others may charge a fee for additional features.

Summary of Money's How to Protect Your Credit During a Divorce

Going through a divorce can be challenging, but protecting your credit doesn't have to be.

Start by speaking to a divorce lawyer who can explain your state’s property laws regarding how assets and debts will be divided. Close or separate all joint accounts to prevent future disputes and credit problems and, if necessary, consider a credit freeze to prevent new accounts from being opened in your name without your consent.

You should also monitor your credit reports regularly. Using a credit monitoring service can help you track changes to your credit score and detect any issues early on.