Separation and divorce are a time of upheaval that impact you, your family, your friends, and your future life plans. One impact of divorce that can go unnoticed is the impact on your credit score. Taking precautions during your divorce can prevent long-lasting damage to your credit.
In many relationships, spouses share living expenses. Which include joint finances, such as mortgages, bank and credit card accounts, car loans, or lines of credit.
After separation, the financial institution does not automatically terminate the account. Excess withdrawals can be made and debt incurred by one or both spouses. If left unpaid, this can damage your credit rating. As a result, it prevents you from getting a loan or mortgage, leasing a car, or being approved for a tenancy in the future.
Unfortunately, there are plenty of stories of a spouse going on a spending spree after separation using a joint line of credit or the other spouse’s credit card.
Here are 3 steps you can take to protect your good credit in divorce.
#1 Order a copy of your Credit Report from Equifax Canada.
This will give you an inventory of all accounts in your name, including joint accounts.
#2 Discuss with your spouse the need to close joint accounts and terminate any credit facilities that you may use in each others’ names.
Your lives are no longer connected and your financial connections need to be separated as well. Regardless of what your divorce agreements may say, as long as both your names are on an open account, you are both legally responsible for it. If the spouse responsible under your agreement does not make payments, this will negatively impact both spouses’ credit scores.
- Be sure that you have severed all credit ties between you and your spouse.
- If an account can’t be paid off/closed off, contact the financial institution to see if it can be converted into an individual account.
- Double-check with the financial institution to ensure that your spouse is not listed as an authorized user of accounts that may be in your name only.
#3 Make new financial arrangements for ongoing mutual expenses until your divorce is finalized.
This can include opening up new individual accounts and setting up pre-authorized payments for expenses such as mortgage and utility expenses.
Even if all such expenses are paid by you alone, you will now have a separate account to prove what you paid in your divorce settlement and will avoid any surprises that could affect your credit rating.
Divorce is a major shake-up. It will affect many parts of your life including your finances. But you don’t need to let it hurt your credit score.
If you want more strategic guidance to help you get through your divorce, contact Benmor Family Law Group today.Share this article on: