Apart from simply dividing assets, divorce can be a complex disentanglement of credit, debt, and other financial items. It’s hard at times to understand how you will come out on the other side financially after the dust settles, but there are things you can do meanwhile to ensure that when your divorce is final, and long after, your credit is protected.
It’s important to understand that divorce agreements are irrelevant to lenders. If your divorce agreement states that your ex is supposed to pay a certain loan but your name is on the loan, you can still be held responsible for any nonpayment. Your credit is still at risk for any loan for which you are a borrower or co-signer.
So what can you do to make sure your credit is protected regardless of your ex’s actions? You have 2 options:
- Remove your name from the loan
- Make sure the lender is paid
Removing your name from the loan is usually not as simple as calling the lender and asking to have your name removed. The loan was granted based on both your and your spouse’s employment and financial positions, so most lenders are not willing to remove a name from the loan. Refinancing, however, can help you get around this.
You could also do away with the loan completely by paying it back. Sell the asset in question and split the proceeds (with the guidance of attorneys like us) and wash your hands of it. If you are upside-down in the loan, it may still be worth it to pay the loan in full, gaining peace of mind that your credit is no longer at risk.
Regardless of which paths you choose for your financial obligations, don’t assume that your credit is safe and that loans are being paid back on time after the divorce is final. Make sure to check your credit score periodically and keep tabs on any loans your spouse is paying back that remain in your name. You should also look into obtaining adequate security to make sure that you are not stuck with the debt without the ability to be repaid. These, and many other steps, are considered and often included in the formal agreement and orders of the court to ensure you are protected.
While divorce can be a time of emotional, mental, and financial turbulence, taking steps to protect your credit score can help you sleep a little easier. Need some guidance on how to handle your debt in the wake of divorce? Contact us.