improving your credit score after divorce

Ways to Rebuild Finances and Credit Score After Divorce

Goldberg Jones Divorce, Featured Posts Leave a Comment

Ending a marriage has a massive impact on almost every aspect of your life. In one fell swoop, marital status, living situation, the time you spend with your kids, and more changes drastically. One area where it often has a devastating effect is when it comes to money. The question of how to rebuild finances after divorce often arises.

Protect Your Credit After a Divorce

You and your ex split up all of the shared assets. Even though the goal is for each party to maintain a lifestyle similar to that enjoyed during the marriage, finances often take a hit.

You may wind up on the hook for a mortgage or car payment. Child support or spousal support may factor in. Or it may be as simple as struggling to pay all the bills from a single paycheck for the first time.

Inventory Your Finances

The best place to begin to rebuild finances after divorce is to take stock of what you have. Catalog your income, all of your expenses, assets, and debts. You can use a spreadsheet, a notebook, or whatever tool you’re most comfortable with.

List all open accounts, assess any investments, and collect what remains of your economic life after divorce. This provides a comprehensive picture of your finances.

Protect Your Credit Score

Your credit score influences everything from applying for home and car loans to renting a new house to career opportunities. It can take a hit when a marriage ends, so it’s important to keep an eye on it and rehab it when necessary.

As you separate, you and you and your spouse will likely have an overlap period where you both have access to shared money. Make sure to keep a careful eye on any joint accounts or debts.

A recent article from financial experts compiled four helpful steps to protect your credit during a divorce. These measures help guard against sudden drops in your score, your ex racking up secret debt, or surprise unpaid bills on shared accounts.

Examine Your Credit Report

You should become familiar with your credit. This means knowing exactly what accounts link to your credit score. It’s important to know what connects to your spouse and what you have on your own.

Throughout years of marriage, it’s easy to forget about accounts, or not know how they affect your standing.

The easiest way to correct this is to pull credit reports from all three credit bureaus, Experian, Equifax, and TransUnion. This helps you differentiate between personal and joint accounts.

Note all authorized users on joint accounts. Authorized users can be removed to cut off their access. Taking someone off an account is often fairly easy. This also means your ex’s spending no longer reflects on your credit score.

Split Joint Accounts ASAP

If you can, work on separating accounts early on in the process. Things often get tense as divorces continue. It may be easier to agree to close accounts, split earned rewards, and the like before things become testy.

If spouses hold joint accounts on any credit cards, any missed, late, or non-payments adversely affect both parties’ credit. Closing out all shared accounts rather than splitting who is responsible for each is usually the best idea. Even if you decide your ex pays a certain card, missed payment still impacts you if you remain on the bill.

Closing accounts does cause a dip in credit score. However, this is usually only temporary and should bounce back once you open new accounts. It’s also key to be consistent and on-time with payments. This helps ensure your credit score remains as strong as possible.

Related Reading: Dividing Debt In Washington State

Contact Your Creditors

Another step: contact your creditors to let them know of your change in marital status.

Before closing joint accounts, credit card companies require you to pay off any remaining balance. If you owe nothing, you and your ex can simply close the account.

If you still owe, you may have to discuss payment plans, refinancing a debt into one person’s name, or transferring the balance to an individual account. You and your ex may be able to agree to sell off an asset in order to pay what you owe.

Whatever system you work out, it’s best to get the terms in writing.

Freeze Your Credit

Freezing your credit is an extreme step, but one that might be necessary to protect your credit score. Especially if you have concerns about your spouse opening new accounts in your name without your consent.

Freezing credit simply means no one can open new lines of credit in your name, not even you. It’s free and all you need to do is contact the three credit bureaus. You can freeze your credit for a specific amount of time or indefinitely.

Create A Balanced Budget

Once you have a handle on your assets and obligations, the next step to rebuild finances after divorce is to balance your budget. Monthly expenses change after a marriage ends. Knowing what comes in and what goes out is key.

It’s important to track your expenses and be aware of how much you spend, and where.

You can use a simple Excel spreadsheet, but there are many online tools and apps like Mint and GoodBudget available to you as well. And more pop up every day.

Financial Safety Net

Having a financial safety net is hugely important now that you’re single. Many experts suggest having a cushion of at least 3-6 months worth of living expenses set aside just in case. This provides a buffer in case of an emergency.

That’s great if you can pull it off, but that’s a substantial chunk of change. Still, it’s vital to set aside what you can in case of the unexpected. Many banks and credit unions offer free initial consultations with financial planners. This may be an option worth exploring to assess your current finances and establish goals to rebuild your finances after divorce.

Prioritize Expenses

Establishing priorities is one way to rebuild finances after divorce.

  • What are your most important expenses?
  • Where can you trim the fat?
  • Do you need to build up your retirement or invest in your children’s college fund?

Figuring out what’s most pressing and important helps provide an economic roadmap and show you where you need to focus, and where you don’t.

Examine Your Taxes and New Filing Status

One area people often fail to account for in divorce is taxes. Some assets received in the division of property are subject to taxes and fees. But the biggest way they impact your future is in your filing status. You’re no longer married, after all, so you don’t get to file as such.

Moving forward, you may want to change your withholdings or even alter your investment strategy depending on the impact. Knowing how your taxes change is a key step to help rebuild finances after divorce.

Related Reading: How Is A Business Handled in Divorce? Can You Protect It?

Make A Clean Break

Once the divorce is finalized, it’s important to make a clean break moving forward. Close any joint accounts. If your spouse runs up debts on a shared credit card, that may hurt your credit.

Creditors may even come after you for payment. In the division of property, it’s common for one spouse to get things like a car or home.

Divorce doesn’t automatically alter any financial agreements you entered into while married. Make sure to remove your name from any applicable loans, mortgages, titles, or deeds. If your ex misses payments and your name is still on the paperwork, it can come back to haunt you. No one wants to start in a hole trying to rebuild finances after divorce.

Have A Plan To Rebuild Finances After Divorce

Making a plan goes a long way towards helping rebuild finances after divorce. Take any of these strategies, among many others, and draw a roadmap of where you want to go and how to get there.

Some people accomplish this on their own, while others enlist the services of financial professionals. It may seem like a daunting or overwhelming task, but it’s helpful to have a concrete plan to look at.

There are many steps that go into trying to rebuild finances after divorce. These are just a few. What you can accomplish depends on your resources, abilities, and circumstances. But you don’t have to be in a monetary hole forever.

Related Reading: The Average Cost of Divorce in Washington
Related Reading: How Does Washington State Divide Property?

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