2/1/2012 3:56 PM ET|
5 steps to protect credit in divorce
The breakup of a marriage can result in financial complications, but there are ways to make sure your credit doesn't suffer.
Confucius say: Beware scorned spouse with shared credit.
Maybe the Chinese thinker and philosopher didn't say those lines, but he should have. Your credit sits on dangerous ground when you and your spouse split up.
"People do unpredictable things during emotional times," says Jennifer Wallis, the vice president of Consumer Credit Counseling Service of Central Oklahoma.
One of her clients found out that her soon-to-be-ex-husband had ruined her credit while they were finalizing their divorce. Her husband had agreed to pay the Citi, Bank of America and Chase credit card accounts, but never did.
What's worse, the sabotage came when the wife needed to establish her own financial identity. Bad credit hurt her chances of getting good terms on credit cards, mortgages and auto loans, while landlords, utilities and insurance companies used it to establish security deposits and premiums. (Do you know your credit scores? Take this MSN Money quiz to get an estimate.)
"It's a bad position to be in if someone has control over your credit," Wallis says.
Here are five ways to protect your credit during a divorce:
1. Create a post-divorce budget
Don't take on more obligations than you can handle in the divorce agreement, or your credit could suffer. Remember: You're moving from a dual-income household to a single-income budget, says Ann Estes, the president of the Atlantic and Heartland regions for ClearPoint Credit Counseling Solutions.
"You need to make tough choices," she says.
Housing costs should take top consideration in your new budget. Those include the mortgage payment, along with property taxes, insurance and maintenance, or rent -- and don't forget the security deposit and renters insurance. Utilities and phone also fall under this category.
Then factor in other obligations: credit cards, auto payments, personal loans and any other insurance costs. If you find that you're close to your limit, consider what can be cut: cable, a premium cellphone plan or other luxuries.
2. Take stock of your debts and credit lines
If you've been married for a couple of decades, you've probably forgotten about all the accounts you share with your spouse, such as an unused home equity line of credit or a Sears credit card you opened seven Christmases ago.
To jog your memory, pull your credit report to see the accounts you have. Note the ones listed as individual, joint or authorized-user accounts.
An individual account in your name means you're solely responsible for the debt, unless you live in a community property state. In community property states, such as Texas and Arizona, any debts acquired during the marriage and within those states are considered jointly owned. A joint account means you and your spouse share responsibility for paying off any debt on that account. An authorized user means the account is held individually by one person who allows another to use the card without being responsible for the balance.
More from Bankrate.com:
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As long as alimony is legal, someone will get screwed, big time. My drunk ex-wife is forcing me and my boy out of our house, because I'm ordered to pay her $1,300 a month. That's my penalty for letting her stay home for 10 years. What a dope! Marriage is for losers, guys. Until alimony is ruled unconstitutional, which it is, any one who supports their spouse is a sitting duck for disaster.
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