Finances: Steps to Consider to Keep Your Good Financial Name After a Divorce
Let’s face it – none of us plan on taking a financial hit after a divorce. But after lawyer fees, home buyouts, child support, and alimony, among other potential pieces of post-marital sticker shock, it can happen.
“So, if you’ve been financially hammered by a marital split, should you despair of ever getting a loan or credit card again? Not necessarily,” says Tracy B. Stewart, a College Station, Texas-based financial planner who specializes in rehabbing the financial portfolios of divorce clients. If things don’t go as planned and you’re facing divorce, or are already divorced, there are several steps you need to take to protect your financial future. Stewart says to first initiate a deep freeze on all of your and your spouse’s financial assets.
“Have your bank freeze your joint accounts so that both signatures are required for any withdrawals,” she says. “Then, protect your credit by immediately notifying your credit card issuers in writing of your impending divorce. Ask them to freeze your account and inform them that you will not be responsible for any new debt.”
“Taking your first financial steps as a single individual again should also include applying for a credit card in your name alone, and closing a home equity line of credit or margin account that may be approved but not in current use”, says Kurt Artecona, president and founder of CreditMD.com, a Jacksonville, Florida-based credit and lending firm.
“Seal all the doors and windows so no new debt is accumulating in your own name,” says Artecona. “Too much damage can be done if you leave spousal accounts open after you split up. It’s not worth the risk.”
“Another tip. Make your credit report your new best friend, financially speaking. All too often after divorce, people allow their credit score to suffer as a result of incorrect data. Check your credit report at least once a year and report any errors to the credit reporting agency and to your lender,” says Stewart. “Requesting a copy of your own credit report won’t affect your score (although it will if someone else requests one) and, thanks to a new law, you can get a free copy of your credit report from each of the three national credit bureaus each year by going to www.annualcreditreport.com.”
Stewart adds that it’s best to spread things out by ordering one credit report every four months. The three credit bureaus are Equifax, Experian, and TransUnion. “When reviewing your credit report, make sure your side of the story is documented. If you run into financial problems during your divorce, you can put a letter detailing extenuating circumstances in your report,” says Stewart. “Lenders may be more lenient toward granting you credit if they know the reason for any prior payment problems.”
Artecona adds that “by law, you have the right to include a 100-word statement in your credit file. The statement should list any extenuating circumstances that could possibly mitigate the negative credit information in your credit report,” he explains. “If your credit history shows that you typically pay your bills on time, this statement could help to explain an isolated instance or period of derogatory credit.”
REPAIRING BAD CREDIT
How can you repair lousy credit after a divorce? For starters, it doesn’t happen overnight. Stewart notes that credit problems generally stay on your record for seven years, while bankruptcies can remain for up to 10. The good news is there are some key action steps you can take to repair credit damaged during a divorce.
“Once you obtain a copy of your credit report, double check it for errors,” advises Stewart. “Sometimes, your credit history may be confused with someone else who has a similar name.”
Another good idea is to meet with a consumer credit counseling representative. He or she can provide you with tools to negotiate with your creditors and also give you some useful suggestions for paying your bills. If things spiral downward to the point where you can’t get your own credit card, open a secured credit arrangement with your bank.
“If you deposit a specific sum of cash with a bank (such as $500), the bank will sometimes provide you with a secured credit card,” says Stewart. “Making timely payments will help to repair your credit over time, as well.”
Another good tip: try mitigating the impact of any derogatory credit you may have on your credit report by adding positive account information to your credit file. “Start by contacting creditors with whom you have a good credit relationship and give them permission to release your account information to credit reporting agencies,” says Stewart. “Be sure to also contact credit reporting agencies and provide them with the names and telephone numbers of the creditors with whom you have good credit.”
For a small fee, most credit reporting agencies will call your creditors and add the positive account information to your file. One point of caution. There is no shortage of frauds and scam artists out there who will promise you a perfect credit score or guarantee a Visa gold card only if you act now. The Better Business Bureau recommends conducting some gumshoe due diligence before forking any money over to a credit repair or credit card company.
The two best ways to do that are to contact your state’s attorney general’s office or local Better Business Bureau to see if the firm you’re dealing with has any complaints or lawsuits against it. Be especially wary of firms that demand money in advance. In general, you’ll be responsible for any debt acquired during the marriage, even if you didn’t run up the debt yourself.
Before sitting down with an attorney, think about which debts were contracted prior to marriage (separate debt) and which ones were contracted during the marriage (marriage debt). Make sure that the divorce settlement states who will be responsible for paying off all debts. Don’t forget about credit card debt.
Either signer on a joint credit card can be held responsible for 100 percent of the debt, not just one-half of the debt. Above all, use your divorce as a wake-up call to figure out what’s wrong with your finances and fix it. If you didn’t have enough savings to survive a job loss or other setback after you’re on your own, get serious about establishing an emergency fund. If your problem was overspending, get serious about creating and sticking to a budget.
