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Effects of Divorce

Divorce and Credit

The effects of divorce on the credit worthiness of both parties is clearly and unfortunately an integral part of getting a divorce. An overwhelming number of people find themselves in a bad credit position after their marriage ends. Not only are they trying to make it on one income, but many are also faced with a substantial amount of debt that they have no way of paying off. Of course, divorce alimony and child support may leave one of the parties with even further burdens. Trying to balance against that with a lowered credit score which can hinder you from buying a home, limit your possibilities of getting a great job or even a bank account can be quite a challenge.

Disconnect for success

The first key point to remember is that your credit must be disconnected from that of the other party as soon as possible. Your name must be legally removed from any instrument that will not become yours after the divorce. Until that time, you remain responsible for credit issues even if they were caused by the other party. Of course, get your name legally removed from all credit cards, loans or credit lines that the other will eventually take over, for until that time you are legally responsible for all debts, even those incurred by the other party. Watch out for the more easily overlooked issues as well. For example, if party A is to get the car, party B is still legally responsible for any liability caused by the use of the car by Party A until their name is legally removed as co owner of the car.

Divorce and bankruptcy

Your credit rating will almost certainly be impacted by the split in finances. The word bankruptcy is often used in terms of divorce; some think divorce and bankruptcy go hand in hand. Bankruptcy may be fitting for some, but there are alternatives. Bankruptcy as a financial strategy should only be considered in consultation with an attorney.

Prior to any specific action, including bankruptcy or debt settlement, consult with your attorney as to how to properly shelter capital gains that may be realized during the marriage settlement. Don't forget to include financial instruments such as CDs, and retirement accounts such as a 401k. As part of this exercise, be sure that you have set aside enough liquidity to handle your current life situation and any costs incurred by going through the divorce.

Know your score

Get your credit reports with your fico score and study them carefully for any items that may have been added incorrectly. Use a credit repair agency or challenge the credit bureau in writing about these issues. They are legally required to respond to the challenge and to distribute corrected information to all appropriate parties if an error is uncovered. Due to the time involved and affordability of an automated credit repair process it can be worth it to pay for a credit restoration service.

Future borrowing will be more challenging; there is no way around that. This is especially true if there was an uneven asset distribution in the divorce settlement. And there are no quick fixes other than patience, persistence, and awareness to work on the effects of divorce.

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