January 1, 2015
When you are helping your client navigate through the divorce process, it is important to take steps to protect their credit score. After the divorce is completed the client’s financial future will be impacted by this number, affecting their ability to take out a mortgage, secure an auto loan, and perhaps even to rent an apartment. Some employers are looking at credit scores as a gauge of the person’s integrity. Here are some tips you can give your client to help them preserve their good credit history.
The first task is to obtain a current credit report with the credit score. This can be done through any of the three credit bureaus, Experian, Trans Union and Equifax. Everyone is entitled to a free credit report once a year from each of the bureaus, which will include credit history but not the credit score. It may cost a small fee to obtain a report with the credit score. The report will show all credit belonging to the client and any joint debt with the spouse.
Unfortunately some spouses use debt as a way to get back at the other spouse, or to anger them. That is why it is important from the onset of the divorce process to watch the debt accounts closely and protect your client from balances that are run up and for which they may eventually become responsible for repayment, whether they incurred it or not.
If your client is worried that the spouse might take out more loans in joint name, he or she can sign up for a credit monitoring service which will provide notification when there is an attempt to open a line of credit in their name. The client can also put a freeze on their credit, which restricts access to their credit history without explicit approval.
Joint credit cards and other accounts should be closed if possible. This is usually available if the account balance is zero. If there is a balance due the client should monitor the account closely, making sure payments are made on time and no further charges are made (a freeze can also be placed on joint cards to prevent future charges.) If the debt really belongs to the other spouse, for instance a joint car loan for the spouse’s car, a new loan should be obtained in the spouse’s name alone.
It’s important to have the client remove his or her name as an authorized user on the spouse’s credit cards. Authorized users are not responsible for the debt, but the debt still shows up on the client’s credit report. If the spouse is irresponsible with the card it could damage your client’s credit history.
Likewise the spouse should be removed as an authorized user on the client’s credit cards so that the spouse can no longer use the card.
Advise your client to stay current on all debt payments even if the debt is going to eventually reside with the spouse. Divorce negotiations may take longer than expected and missed payments will damage your client’s credit score. If your client is not the party responsible for making the payment, your client should get monthly statements or have online access to the shared debt to ensure that payments are made.
The client should not take on any new debt they may not be able to handle. During the divorce process one spouse may use credit cards to live on while waiting for an alimony settlement, or may buy a new house when they move out of the marital home. Encourage your client to avoid new debt. They may need to seek financial assistance if they are having trouble covering expenses, or wait until the settlement is final to assess their financial situation and make a more informed decision as to whether or not they can really afford the house they are considering. It is sometimes hard for parties going through a divorce to realize their 2-income lifestyle is now two separate lifestyles.
Debt is an important part of your client’s financial picture. You can be instrumental in helping them protect and strengthen their credit score, enabling them to live a better future.
