Why Can Divorce Ruin Your Credit?
Understandably, parties involved in a divorce are often completely focused on key issues like child custody and property division. Consequently, they may fail to consider the impact divorce can have on their ability to obtain credit in the future. Many divorced individuals apply for a home or car loan, only to discover that a low credit score results in higher interest rates, higher monthly payments or even denial of a loan application.
Divorce and Community Property
In Nevada, marital property, which includes assets and debt, is divided into two categories: separate and community. Separate property is that which was brought into the marriage, while community property is obtained during the marriage.
A typical example of debt considered to be community property is a joint credit card in the name of you and your ex-spouse. Even after divorce, you may still be responsible for this debt even though the divorce decree indicates that your ex-spouse is legally obligated to pay it.
Common Debt Scenarios
Here’s an all-too-common scenario: Suppose you and your spouse jointly obtained a MasterCard and Visa during your marriage, and each card has an outstanding balance of $10,000. In accordance with community property law, the divorce decree may stipulate that you are responsible for the MasterCard debt, while your ex-spouse is responsible for the Visa. What happens if you continue to make timely payments, while your ex-spouse defaults?
Unfortunately, even though you’ve faithfully made your credit card payments, you are still on the hook for your ex-spouse’s irresponsible behavior. This is because credit card companies are not legally bound by the terms of the divorce decree; since the account was opened in both names, you and your ex-spouse are equally liable for the debt.
If your ex falls behind or defaults on the payments, your three-digit FICO score, which creditors rely upon heavily to determine creditworthiness, will likely take a nosedive, making it more difficult to obtain credit in the future.
Safeguarding Your Credit During and After Divorce
There are a number of steps you can take to protect your credit both during and after the divorce process. Close any joint accounts so that no additional charges can be made. Make every effort to pay off outstanding balances on joint accounts before the divorce is finalized. After the divorce, be sure to monitor any joint accounts assigned to your ex-spouse to ensure timely payments are made. It may even be necessary to step in and make a payment to maintain your FICO score.
Help Is Available
To learn more about the impact of divorce on credit, contact the Nevada divorce law experts at Right Lawyers at (702) 767-7611.