A divorce has many impacts on an individual’s personal and financial life, particularly in states like Colorado, where courts compel divorcing spouses to divide their marital assets and debts in a way that’s “fair and equitable.”
Changes in income, turning one household into two, and paying and receiving child support and spousal support all have significant impacts on both spouses in a divorce. Many divorcing spouses face financial uncertainty as they move forward after the divorce. A frequent concern is “How does divorce impact my credit score?”
Colorado divorce laws require spouses to divide marital assets and debts in a fair and equitable way, if not exactly 50/50. Each spouse is entitled to keep any assets and property that belonged to them before their marriage, and any debts they acquired before their marriage remain theirs alone. However, any assets accumulated during the marriage belong to both spouses jointly.
Debts may also be joint obligations depending on whether or not the spouses maintained separate lines of credit. Most spouses accumulate several joint accounts during their marriage, including joint lines of credit on credit cards, as well as car loans, and mortgages.
While the divorce itself does not automatically impact credit, even when it involves a drop in one spouse’s income or assets, the way the divorcing spouses handle the division of their debts can affect their credit.
Those married spouses who keep their lines of credit separate throughout their marriage retain those debts in their name. This only negatively impacts their credit if they fail to maintain payments due to a change in financial circumstances.
However, as most spouses have one or more joint accounts, it’s important to know how to avoid a negative impact on credit history by doing the following:
Credit card and loan companies do not necessarily have to comply with a judge’s orders on giving a joint debt over fully to one spouse. If you and your spouse have a joint line of credit or loan agreement that the creditor will not agree to separate, it’s a good idea to make an arrangement with your spouse to prioritize paying the debt off in full as soon as possible so you can separate your credit.
If your name remains on a debt distributed to your spouse during the divorce, it still impacts your credit if your spouse doesn’t make payments unless the creditor agrees to remove your name from the account.
Be prepared for the possibility of lowered limits on credit cards after removing a spouse’s name. Removing a spouse as a joint account holder also removes their income and credit history.
Often, the credit card company’s formula for calculating credit limits causes them to adjust your line of credit in response to removing the spouse as a joint account holder. Limiting your credit line may also impact your credit score. An individual’s credit score depends largely on their debt-to-credit ratio—the amount of debt an individual carries compared to the line of credit available to them.
Lower debt-to-credit ratios are better for a credit score. For this reason, some divorce financial experts recommend waiting until the debts are paid off or significantly paid down before removing the spouse’s name from existing accounts.
Contact an experienced Denver divorce lawyer at Ciancio Ciancio Brown, P.C. today for skilled representation in your divorce. During the discovery period with full financial disclosure, your attorney from Ciancio Ciancio Brown, P.C. will develop a financial strategy to protect your credit during the divorce process and after your divorce so you can move forward in the best possible circumstances.
