How a Divorce Can Impact Your Credit
A principal concern of parties preparing for or going through a divorce is how it will impact their credit scores. You may have spent years building up a decent credit rating and fear that a divorce may have a negative impact. For example, if you had a joint credit card account with a balance of thousands of dollars that is now assumed by one of the parties, what happens to your credit if that party does not make payments?
For the most part, a divorce does not directly affect your credit. Before you file, however, you should take steps to minimize your obligations on certain debts. If either of you signed a contract (or are on a joint credit account), then you both remain responsible unless you redo the contract to be put it in one name only. This is also true if you are merely an authorized user. It makes no difference to the lender if a divorce decree states that the other party now assumes that debt since both your names are on the contract or account. If the responsible party makes late payments, or none at all, both of your credit scores will be negatively impacted and the lender might sue both parties in order to collect.
When contemplating divorce, obtain copies of your credit report and score from all three credit reporting agencies. You can obtain these at no cost once over a 12-month period. These reports will contain the marital debts accumulated during the marriage, and which remain outstanding. Unfortunately, there are times when one spouse takes out a loan (or signs up for a credit card) and has fraudulently added the other spouse to the debt. The spouse without knowledge of the debt will at least be able to identify it when obtaining credit reports.
All Debts are Considered Marital
In a Florida divorce, the courts assume all debts incurred during the marriage are marital. When you file for divorce, this can be your dividing line between marital and separate debts, so consider this before you file. Florida is an equitable distribution state, meaning that although the courts favor an equal division of assets and obligations, it will divide the assets and obligations based on fairness and after considering a number of factors:
- The duration of the marriage.
- Each party’s economic situation.
- The contribution of each to improvement of the marital assets.
- If a party relinquished or delayed an educational or job opportunity, or did so to contribute to the career of the other
- If a party destroyed or diminished the value of assets within two years of the divorce petition, or after it was filed
- Whether a spouse unilaterally maximized a credit card or spent funds recklessly.
Even if the court does rule that your spouse is now responsible for that obligation, take immediate steps to remove your name from that account. If the account is relatively small, consider jointly paying it off immediately, or perhaps compromise on some other asset if you are the one paying it off.
Florida courts can award different types of alimony that may be short-term or even permanent in some cases. These include bridge-the-gap, rehabilitative and durational. These are temporary awards based on the receiving party’s need and if there is a substantial difference in the parties’ economic situations. Alimony, in these cases, is to assist the recipient spouse in acquiring marketable skills through schooling or job training, and to ease the transition. Permanent alimony can be awarded, but usually to marriages of long duration – usually 17 years of longer.
Florida courts, however, will look to see how much marital debt the paying spouse is to assume in determining the amount of alimony. It can be unreasonable for the paying spouse to assume thousands of dollars in debt, and be required to pay a substantial amount of their income in alimony (if the debt prevents them from having the ability to pay alimony).
Child Support Payments
Florida courts take child support payments very seriously. If you are in arrearages, you can face contempt charges and possible incarceration if your failure to pay is considered willful and you have the ability to pay your obligations. Other sanctions include suspension of your driver’s license, or levying on your bank account. If you are delinquent in your payments, the state will send you a notice reminding you of the arrearages. Should you fail to pay, the state agency can report this to the credit agencies, and your credit scores will be negatively impacted. A low credit rating significantly affects your ability to obtain loans, or to get one at a reasonable interest rate.