Will getting divorced harm my credit rating?

After all the stress of divorce, many people hope they can make a fresh start and get on with the rest of their lives. Even if you don’t feel you have a complex financial settlement to handle, we explain why it’s so important to plan carefully to make sure you don’t end up sharing debts years down the line.

Jonathan* came to me recently at our Bath office with a problem: he had been divorced for over two years, but he and his ex had never sorted out their financial settlement. They hadn’t thought they needed to – all they had was a rented flat and a joint bank account, and the child support was dealt with through the government Child Maintenance Service.

But that was the problem – the joint bank account was still in both their names and, by the time Jonathan came to see me, spending by his ex-wife had led to it becoming heavily overdrawn. It had taken time to freeze the account, and late charges and fees had piled up on top of the existing debt. His ex refused to contribute to the overdraft. This meant that both parties were held in debt and their credit scores had been damaged by failing to pay the overdraft. Now Jonathan would find it very difficult, if not impossible, to get a mortgage.

Could this happen to me?

The key thing to remember is that divorce itself does not directly hurt your credit rating because it isn’t affected by your marital status, as we covered in this blog. But the financial issues that are embroiled in the divorce process often involve joint credit accounts, and those can impact your credit history and credit scores.

As happened to Jonathan, if your ex doesn’t keep up payments on a joint account, both your credit ratings will suffer. It doesn’t matter if she/he has been the one who always controlled that card, or paid the household bills with it – if it’s in your name too, then it’s on your credit record.

How can I avoid this?

Missed payments can occur years after the divorce and still be reported for all individuals associated with the account. In some cases, vindictive behaviour during the divorce by one or both spouses can have a very direct, very negative impact.

  1. Maintaining civil and constructive negotiations during the divorce will help you to avoid the pitfalls of a vindictive split – this is something we work hard to achieve at Sharp Family Law. Working together to pay off and close existing accounts is the best possible approach. If you and your spouse are on good enough terms, you can agree to limit or halt any spending on joint accounts quickly and efficiently.
  2. If closing an account is not possible, try to convert the account to an individual account. Contact each creditor and explore the options available – and make sure your bank knows what is happening.
  3. If you’re unsure, then you will need to make sure that the accounts do not sink into the red. Banks can freeze certain bank accounts, but things like utility payments and mortgage payments cannot simply be frozen – you will have to make arrangements to make sure these are met.
  4. Finally, getting your financial settlement formalised – even if it seems really simple – can put these concerns to bed for good. With my assistance, Jonathan was able to agree a deal with his ex over the overdraft costs and have it written into his settlement that the account would be closed… at last!

If you have concerns about how your ex’s financial behaviour may impact you post-divorce, call and speak to one of our solicitors.

 

* Name anonymised

Article by Madison Fowler

Madison works with clients, who want a constructive process and a long-term solution that enables them to co-parent effectively and move forward with their live. Her aim is to protect clients and what is important to them without generating additional conflict or unnecessary costs.