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Many people would consider their wedding day as one of the most memorable days of their lives. Unfortunately, however, not all marriages are built to last. In fact, according to the American Psychological Association, some 40% to 50% of first marriages end in divorce.
Divorce can be a lengthy process that includes lawyers, court filings, considerable expense and an eventual divorce settlement. Once it's finalized, both soon-to-be ex-spouses will become subject to what's called a divorce decree. A divorce decree formalizes the agreements between the court and the spouses, including who is responsible for making payments on shared debts and other financial obligations. What a divorce decree does not do, however, is to absolve you from your contractual liabilities with your creditors.
How Does a Divorce Decree Work?
Marriages, like most partnerships, are formalized with documents. A marriage license is the document that formalizes a marriage, and a divorce decree is the document that formally ends it.
During your marriage, you and your spouse may have signed documents such as cardholder agreements, leases, promissory notes and other contracts that obligated you to make payments on debts and services.
If you and your spouse entered into these agreements together, then you are what's known as co-obligors. That means you and your spouse are equally liable for the repayment of your debts, despite what your divorce decree may say. A divorce decree may specify which partner should be making a payment each month, but joint responsibilities don't just disappear when you decide to end your marriage. The divorce decree does not change your status as a co-obligor, which means you'll face consequences if your partner doesn't hold up their end of the agreement.
Does a Divorce Decree Absolve You From Any Debt Liabilities?
Divorce decrees, while legitimate court documents, do not change or modify your agreements with creditors or service providers. Even if your ex-spouse has agreed to make payments on debts you both incurred, your divorce decree does not amend the original agreements with your lenders accordingly.
Your lenders are rarely, if ever, a party to your divorce decree. As such, they are not bound by the terms of the agreement you made with your ex-spouse regarding who will make payments on your joint liabilities. In your lenders' eyes, you're both still liable.
Because both spouses are still liable for jointly incurred debts, they are likely to remain on both spouses' credit reports. And they will continue to influence your credit scores. If the accounts are paid on time after a divorce, a record of on-time payments will continue to appear on the obligors' credit reports. And, conversely, if the accounts are not paid on time a record of the late payments will also appear on credit reports belonging to both partners.
For example, you and your ex-spouse may have purchased a home with a joint mortgage loan while you were still married. During the divorce process, your ex-spouse agrees to
take the house and continue to make payments on the mortgage loan. If your ex-spouse does not make the payments on the loan as agreed, those late payments will show up on both of your credit reports since you are both still liable for the debt.
Does Divorce Affect Your Credit Report or Credit Scores?
Your marital status, including whether you've gone through a divorce, isn't noted on your credit reports. As such, going through the divorce process has no direct impact on your credit scores or your credit reports. The impact of a divorce is, instead, indirect and can only be caused by missed payments on joint liabilities and debt.
The indirect impact of a divorce will vary from person to person. For some, divorce is immaterial to their credit. For others, a divorce can be very destructive.
Remember, joint accounts will still appear on your credit reports even if the court assigns payment responsibility to your ex-spouse. The only way to have those debts exhausted would be to either pay off the debt or to refinance the loan into only one spouse's name. That would effectively pay off the joint debt or create a new debt, but only in one spouse's name. This won't cause the former account to be removed from your credit reports, but it will cause a zeroing out of the balance and an end to any activity.
To the extent a divorce leaves you unemployed and without sufficient income, that can certainly cause you to lean more heavily on credit cards to make ends meet. This can lead to a higher balance relative to your credit limits, which can lower your credit scores. And you may start missing payments on your own accounts, which will eventually lead to potentially score damaging late payments.
Be Prepared Before You File
If you know you or your spouse will be filing for divorce, then it's not a bad idea to take some steps in advance to ensure your credit reports are as insulated from the process as possible. This may cause you to do certain things that you wouldn't normally do as it pertains to credit management practices.
For example, if you have joint credit cards, it might not be a bad idea to open one or two new cards only in your name. This will help protect your buying power if and when your joint credit cards are closed as part of the divorce process. Experian CreditMatch™ can pair you with credit cards that fit your unique credit profile.
If you have joint loans, such as a mortgage or an auto loan, those are more difficult to address. Unless you want to leave it to the court to determine who will be responsible for making payments on those debts you may want to consider disposing of the assets. That means selling your home and/or car, possibly to your spouse, as this will eliminate the joint debts. This also eliminates the possibility that joint loan obligations, and their potential problems, will persist after your divorce has been finalized.
You may also want to sign up for Experian Boost™† as a strategy to increase your credit scores. Boost is a free service you can use to add your phone, utility and other accounts to your Experian credit report, which can help improve your FICO® and VantageScore® credit scores.