See Ya…Adios…Sianora…The Painful 'Death-Like’ Experience Called ‘Divorce’…And How It Can Effect Credit Ratings

If one of the primary reasons for a split emanated from excess debt and credit challenges then there may not be a lot of cash floating around to effect a quick settlement. Additional complications may flow from a foreclosure and/or bankruptcies where one party may not want to stay around for the rebuilding phase. It could drag on for a while, as there is not enough money to pay the lawyers. Time kills credit ratings in an emotionally charged atmosphere where an otherwise ‘normal’ person takes on a new persona. The game evolves into a pushing game of resistance and tugging with plenty of blame flying around. If the shoe is dropping, each party needs to take action to protect their respective futures. We will assume that all attempts at reconciliation and marital counseling have been exhausted.

Whether the split is amiable or not it will be necessary to take a quick inventory of the financial assets. This will include any real estate held, automobiles, personal property, toys, credit cards, installment debt, mortgages, utility bills, cell phones, water, sewer, trash, electric, 401(k)’s, IRAs, stocks, mutual funds, bonds, insurance coverage and a multitude of other things intertwined into what was a marriage. Collateralized debts such as houses and cars will need the payments to be maintained or the lender will pick them up or repossess them. Utilities will need to be maintained or they will be shut off. Cash accounts being cleaned out by one or both of the spouses will tax and stress an already tense situation. A budget for two residences, assuming there is a separation, will be necessary putting further stress and strain on the crumbling relationship and financial resources.

This process may proceed and play out like the movie with Danny DeVito and Bette Midler in “Ruthless People” or the movie “War Of The Roses” with Michael Douglas and Kathleen Turner or even the movie “The First Wives Club” where revenge and getting even or ahead is the common thread. Everyone has been touched by divorce somewhere in their family or a circle of friends or acquaintances. It’s not close to being funny when one is living the nightmare. Some of these real life situations have ended tragically. This is not a movie. It’s the real deal, no popcorn served here. When cooler heads prevail, there are some elemental steps that will help each spouse and their financial futures.

With an inventory completed of the financial and asset side of the marital property the credit cards need to be acted on immediately. Any jointly held cards should be frozen immediately with no further charges allowed by either party. Individual cards can be maintained, but may now be flagged to require an exact signature to be accepted. Debit cards will need to be cancelled on joint accounts. If children are involved it makes for a higher degree of emotional tug of war. Each party needs to pull the free annual credit report from the three credit reporting agencies which includes, Experian, Trans Union and Equifax to take a snap shot of their credit report and status of all accounts as of that date. If the parties are talking, efforts can be made to divide up the assets and handle the marital home and support issues, if any, with a calm and rational approach. If attorneys are engaged at the outset it’s important not to abdicate full responsibility for one’s credit health by keeping an early eye on the ball. If there is a property settlement where the husband or wife is directed to make payments of this or that it will still effect both parties IF it is jointly held credit. Non-payment will injure the other party if the court ordered divorce decree and/or maintenance is not followed. Depending on how the settlement unfolds, as soon as possible the mortgage needs to be put in one or the others name along with the deed changes. This is accomplished by paying off the old mortgage with a new one. If the existing mortgage is late it will adversely pull down both credit scores. With mortgage lates, neither party will be able map out a credit recovery plan. Cars with joint liens need to be sold or traded to get the other spouse off the title and lien.

It’s important to note that personal or real property liens trump any divorce settlement. If payments are not made the credit is adversely effected. For some splitting couples, selling the house, filing bankruptcy, moving to other job locations is their only resolution. Two income households now become one. Changes have to be made. Once the assets and liabilities are sorted out with a plan of division and support are in place then a proper course of action can be set. A good Family Law Practitioner is an important piece of the resolution of the split. Everyone has heard of many a gut wrenching, traumatized, stress max divorce. Going through this wringer is an emotional grinder. If the spitting parties can focus on doing a fair split while preserving their financial positions then each of their credit histories can be shored up to begin the rest of their respective lives. Whether it is refinancing the homestead mortgage to buy out one of the spouses equity, or dividing the cash up and other assets and split the credit cards debts the parties give themselves an opportunity to move on to a new life. Otherwise financial ruin for 7 to 10 years may be guaranteed through a mortgage foreclosure or bankruptcy becomes the end game. Counseling can help set the stage for reconciliation or that dreaded phrase “Irreconcilable Deference’s” can lead to an amiable splitting and allocation of the marital assets. There are so many nuances to this division and moving on. There are infinite combinations of factors that come into play. Again a good Family Law Practitioner can be helpful, BUT each party must be focused on their own financial credit health and must be proactive in the protection of their credit histories and how that may play out in the divorce settlement. Each needs to determine all the facts and bring in whatever assistance necessary to help in that endeavor. Every effected party has an opportunity to set the tone of how things proceed, assuming all other things being equal. It’s either that or the battle royal with pounds of flesh extracted from each donor. Divorce can be a “Death Like” experience. For many divorce participants it defines them the rest of their lives, for others it’s just the beginning of the rest of their lives. Maintaining one’s credit history can pave the way to the future. It takes proactive planning to make it happen. Ignore it at their peril.

Dale Rogers