Articles - Expert Advice: August 2010

Divorce's Affect on Credit

My husband and I recently divorced. Can this affect my credit?

Worrying about your credit may be the last thing on your mind during a divorce, but it is necessary in order to preserve your financial reputation. That's because divorce can greatly impact your credit and leave you in financial ruin.

The next place to build your nest egg might be a Roth IRA. If needed, any direct contribution to the Roth IRA can be taken back out penalty- and tax-free. The account itself grows tax-free, withdrawals upon retirement are tax-free and there are no mandatory withdrawals like you have with a 401(k).

In the course of your marriage, you and your spouse may have combined all your finances, ranging from the ownership of property to bank accounts. An account held jointly is where you want to direct your attention. Both you and your spouse are responsible for joint debts as long as there is an outstanding balance. One person may refuse to pay the debt, leaving a burden on the other party. Keep in mind: divorce decrees have no legal effect on debts accumulated in both names. Creditors may collect from either of the divorcees.

It's a good idea to close joint accounts—even those accounts where your spouse is an authorized user. When possible, ask creditors to reopen them as individual accounts. The creditor may require you to reapply for credit on an individual basis. Then based on your new application, they may deny or extend credit.

Obtain a copy of your credit report before and after a divorce. Check for accuracy and dispute any problem areas or accounts that continue to be shown in both names. Finally, educate yourself as thoroughly as possible about the financial implications of divorce. The more you learn, the more control you will have.