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| | The Business Finance,Taxes and Business Operations Network is not currently active and cannot accept new posts | | Protecting Your Credit During Divorce | Views: 1294 | | Sep 21, 2006 9:03 pm | | Protecting Your Credit During Divorce | # | 
Kim DeBroux | | When a marriage ends in a divorce, the lives of those involved are changed forever. It is a tremendous time of upheaval for everyone, adults and children. One of the many things to consider is how the divorce will affect both individual’s credit status.
Unfortunately, it is usually never addressed during the divorce process, or is handled in a manner that results in detriment for one or both parties. There are unfulfilled promises to pay bills, the maxing out of credit cards, and often times the current mortgage becomes a factor due to a total breakdown in communication that frequently occurs.
The good news is, it doesn’t have to be that way. By taking a proactive approach and creating a specific plan to maintain one’s credit status, anyone can ensure that “starting over” doesn’t have to mean rebuilding credit.
The first step for anyone going through a divorce is to obtain copies of your credit report from the three major credit bureaus. It’s very difficult to formulate a plan without knowing what your current situation is. You may obtain a free credit report once each year by visiting www.annualcreditreport.com. I recommend you check what’s on your credit report annually as a part of your regular financial check-up that includes looking at your insurance policies, investments, and overall financial plan.
Once you’ve gathered the facts, you can begin to address what’s most important. Create a spreadsheet and list all of your current open accounts. For each account create columns and fill in the information for:
1. Creditor Name
2. Contact Number
3. Account Number
4. Type of Account (credit card, car loan, mortgage, etc.)
5. Account Status (current, past due, deferred)
6. Account Balance
7. Minimum Monthly payment amount
8. Annual percentage rate of the credit account
9. Who is responsible for the account (one party, both parties, authorized signers)
Now that you have collected this information, it’s time to make a plan. There are two types of credit accounts, and each is handled differently during a divorce. The first type is a secured account, meaning it’s attached to an asset. The most common secured accounts are car loans and home mortgages. The second type is an unsecured account. These accounts are typically credit cards and charge cards, and have no assets attached.
With secured accounts, you have three options:
1. Sell the asset so your name is no longer associated to the asset.
2. Refinance the loan (one spouse buys out the other)
3. Keep your name on the loan
Refinancing the loan requires the spouse who is keeping the asset to qualify on their own for a new loan and make the payments on their own. Keeping your name on the loan is the most risky option because if you’re not the one making the payment, your credit worthiness becomes extremely vulnerable.
If you decide to keep your name on the loan, make sure your name is also kept on title, otherwise you might be required to pay for something you don’t legally own.
Selling the asset generally involved lots of emotional ties and can be difficult in many instances, particularly if you are talking about a family home and children. Speaking to an ethical mortgage professional is extremely important. They can review your existing home loan along with the equity you’ve built up and help you determine the best course of action. To find a qualified ethical mortgage professional, contact the National Association of Responsible Loan Officers (www.narlo.com), or Certified Mortgage Planning Specialists Institute (www.cmpsinstitute.org).
When it comes to unsecured accounts, you will need to act quickly. It’s important to know which spouse (or both) is responsible for the account. If you are merely a signer on the account, have your name removed immediately. If you are the vested party and your spouse is a signer, have their name removed. Any joint accounts (both parties vested) that do not have a balance should be closed immediately.
If there are jointly vested accounts that have a balance, you can have them frozen. This will ensure that no future charges can be made to the accounts. When an account is frozen, however, it is frozen for both parties. If you don’t have any credit cards in your name alone, you should get them before freezing any accounts. By having a card in your own name, you now have the option of transferring any joint balances into your account, guaranteeing they’ll get paid.
Making sure payment on a debt that carries your name gets paid in critical when it comes to preserving your credit during a divorce. Keep in mind that one 30-day late payment can drop your credit score as much as 75 points. It is also important to know that a divorce decree does not override any agreement you have with a creditor. Regardless of which spouse is ordered to pay by the judge, if the payments aren’t made it will affect the credit score of both parties. So, not only do you want to eliminate all joint accounts, you want to do it quickly.
Divorce is difficult for everyone involved. By taking these steps, you can ensure that your credit remains intact.
Kim DeBroux is a Certified Mortgage Planning Specialist and member of the National Association of Responsible Loan Officers. Western Pacific Home Loans, Inc. is a licensed California Real Estate Broker.
If you would like to obtain a free Consumer Credit Scoring Booklet, please contact
Kim DeBroux at (800) 753-4595 or via email at Kim@goWesternPacific.com or visit http://www.WesternPacificHomeLoans.com.
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