Does Divorce Always Negatively Affect One’s Credit?
Carlsbad, CA – The iconic image of divorce is the husband and wife ornament on the top of a wedding cake being cut into two separate pieces, creating a divide between the two former lovers. Going through divorce kind of feels like you and your spouse are being sliced apart into two different people. For years you two have been one entity, and now you’re forced to take stock of your now single life. Of all the important things you now have to consider – where you’ll live, what assets you will be allowed to take with you, and what support system you will rely on – you also have to worry about your credit score.
After all, building a new life, in many instances, requires credit. Will you be able to afford a house for your family, or a car to get to and from work? These are serious questions to consider. But do you always have to worry about your credit taking a dive after divorce? Is there a way you can get by unscathed and with your credit score intact?
It all depends on what debts the two of you accumulated during the marriage, and your divorce agreement going forward.
How Much Debt Did the Married Couple Accumulate?
During the divorce process, you and your soon-to-be-ex spouse will be required to come up with a divorce settlement. More specifically, you’ll be required to fill out a document known as the Schedule of Assets and Debts.
This document will list not only assets like bank accounts, retirement accounts, and property but also community debt and liabilities.
Community debt and liabilities could include car loans, mortgages, credit cards, consumer loans, and lines of credit. Personal guarantees to settle a business debt or business lines of credit can also be considered.
How is Debt Divided?
California is a community property state, which allows creditors to hold both you and your spouse liable for any debt established individually during the marriage. By assigning community debt at the time of divorce, you can remedy this potential problem.
A judge will take into consideration the amounts owed and the situations involved with each debt occurrence. For instance, if you and your spouse use joint credit cards, which are common in marriages, and one of you uses that card during divorce, this creates a potential problem.
The creditor will see both of you as owing the amount you spent during the divorce, but a judge may deem you to be the sole person responsible for the debt owed. This is why it is crucial to save all receipts so that you can get a fair outcome post-divorce.
Before a debt can be assigned, the Judge will want to know the situations involved with each incurrence of debt, and any securities that may be in place for the obligation to pay the debts in full.
- If a loan is backed by a car as security, the spouse who gets the car in the divorce will also be responsible for the car loan’s payments.
- The spouse that is more financially stable should be responsible for debt unsecured by property, such as the credit card balance of a signature loan.
- If neither spouse is able to cover the debt payments, the couple should agree to pay creditors by selling assets.
- When you are worried that your spouse cannot pay off the debt, leaving you unnecessarily responsible, you’ll want to make sure the debt is paid off before the divorce is finalized.
It should be noted that debts established before marriage or after the marriage is finalized are considered separate debt and can only be assigned to the spouse that incurred them, in most instances.
There are many variables when it comes to California divorce and debt division, but one thing is certain: Things are sure to get complicated quickly no matter how much debt is owed. Bankruptcy, figuring out how to divide a mortgage when one spouse has moved out, and the commingling of separate and community property are all tinderboxes that can ignite fresh credit woes for many divorcing couples.
Now back to the original question: Does your credit have to take a hit in order to get divorced in the state of California? The straight answer is – not necessarily.
The divorce itself won’t show up on your credit report, so you can take some solace there, but there are too many factors to consider to leave things up to chance.
Paying off debts before the divorce is finalized and making sure you take care of your financial obligations during and after divorce can help keep your credit score in the green. However, if your spouse is ordered to pay a joint debt and doesn’t pay or files bankruptcy, that could have a negative impact on your credit.
In order to emerge on the other side of the divorce process unscathed, you should seek the help of a qualified and experienced California family law attorney. Only a divorce lawyer can help you categorize and split debts fairly, and in such a manner where they won’t become a burden as you begin this next phase of your life.
If you are concerned with your financial future in the face of your pending divorce, in Carlsbad, Leucadia, Encinitas or Los Angeles, call (858)345-1720 or email California law attorney John Griffith of Griffith, Young & Lass for a free consultation.
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