Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
Divorce is a difficult thing to go through in a variety of ways. Aside from the obvious emotional toll, the process can also take a toll on your finances, even long after the divorce itself has been finalized. Untangling joint accounts and shared financial responsibilities can be tricky. That’s especially true when it comes to credit.
Although you still have an individual credit score even if you’re married, if you opened joint accounts with your ex-spouse during the marriage the financial habits of him or her can continue to affect your score even after the divorce is finalized. Here are four things to look out for, and what to do about them.
1. An Ex-Spouse Doesn’t Pay Joint Accounts on Time
If you have settled in court who is going to pay which credit card bills after the divorce, it’s important to make sure those debts get paid off on time. This could affect your credit score if those bills are paid late or not at all. The creditors don’t care that you got a divorce, they just want your debts paid off on time.
Unfortunately, there’s no easy way around this. Even if a particular debt was assigned to your ex-spouse during divorce proceedings, that does not cancel out the contract you made with the credit card or loan company when you took out the funds. It does, however, mean that you can sue your former partner for the unpaid debt that was assigned to them – but you still have to ensure the debt is being paid in a timely manner in the meantime.
2. Not Enough Credit History
In a marriage, if all the credit used was from one spouse, then the other spouse might not have a fully utilized credit history or any credit history at all – and that can prevent you from getting the loans or higher credit limits you might need later on to buy a house or purchase a car on your own. If you’re in this situation, don’t panic – there are things you can do to bring your credit score up. Check out financial education websites like mint.com, nerdwallet.com or mymoney.gov for resources that can help you take control of your credit score.
3. Credit Limits Go Down
If you and your ex-spouse pooled your incomes, you’ll obviously now have less money to work with now that you’re down to just your income alone. Be aware that the credit card company may lower your maximum limits, and that your debt-to-income ratio will change, possibly negatively affecting your score in the end. The solution? Pay down that debt as quickly as possible. The less debt you have, the better your debt-to-income ratio will be, and the better your credit score will become.
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4. Not Paying Your Own Bills on Time
The financial impact of divorce can also make you late in paying your own bills when you find that your own income doesn’t stretch as far. To avoid this, make a new budget that’s based on your solo income as soon as possible. This will help you understand where you may have to trim costs and tighten your belt. Sometimes it even means making a total lifestyle change. But knowing that sooner rather than later and sticking to an appropriate budget for your new single-income reality will save you a lot of late fees and stress in the long run, not to mention the serious dings to your credit score that nonpayment can cause.
Look Forward to A Brighter Future
Divorce is an emotional time filled with many important decisions, including financial ones. There’s a lot to consider and a lot to do all at once. If you’re struggling to figure out the best way to go forward with financial confidence once your marriage is dissolved, talk to a trusted financial advisor. They’ll be able to guide you in the right direction to ensure you’re making smart decisions regarding your credit and any long-term financial matters you have questions about.
I take real pride in helping my clients through difficult life turning points such as divorce. So much so that I chose to become a Certified Divorce Financial Analyst (CDFA®) in addition to a Certified Financial Professional (CFP®). The training I received to hold the CDFA® certification has equipped me to analyze my client’s financial situation and assist him or her (as well as his or her attorney) in understanding how decisions made during the divorce process and after will impact their financial future. Having that knowledge and a solid plan in place for how to move forward can go a very long way toward helping you to look forward to a brighter future ahead.
If you’d like to learn more about how our team at Weiss, Hale & Zahansky Strategic Wealth Advisors can help you, and how our Plan Well, Invest Well, Live Well strategic process can help you to achieve your goals in the new future you envision for yourself, reach out to request a complimentary consultation at whzwealth.com, or call us at (860) 928-2341.
Presented by Senior Vice President, Financial Advisor Leisl L. Cording CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.