Divorce Can Affect Credit Scores and Personal Finances
Divorce Can Affect Credit Scores and Personal Finances
Going through a divorce can be a challenging time for individuals, both financially and personally. Oftentimes, divorcing couples have to make tough decisions, such as who gets custody of the children, gets ownership of which car, and stays in the marital home.
Next to such large life issues, the effect a divorce has on a credit score may seem insignificant. However, a divorce can have major implications on a person's personal finances, as spouses are often responsible for joint financial transactions, even after a marriage ends.
Nearly half of all marriages end in divorce in the United States, according to recent figures from the Centers for Disease Control and Prevention. With divorce becoming increasingly more common, it's important to know the financial dangers it poses.
"Divorce can also have a serious impact on a couple's credit standing, both in terms of dividing joint debt that exists at the time of the divorce as well as the expenses that come with starting a new life," says Lorretta Worters, vice president of the Insurance Information Institute (III).
A poor payment history on the part of one spouse during a marriage can impair both parties. During a marriage, couples often open joint accounts so they can begin making bigticket purchases, such as a home or a car. These often come in the form of joint bank accounts and insurance policies, all of which contribute to an individual's finances after a divorce. While these remain open, payments continue to be the responsibility of both parties, as even one missed payment can significantly alter a credit score.
By closely monitoring the credit of a joint account, a spouse can hinder the ability of his or her partner to make reckless expenditures, since both parties would be responsible for the payment. Debts incurred prior to the divorce are generally regarded as the responsibility of both parties, according to the III.
"There is nothing to stop your spouse from raiding those investments and taking it all," according to John Logan, CEO of SafeGuard Guaranty, a divorce insurance company. "And then with all the money gone, you're left with all the legal bills."
Most experts believe that during a marriage, individual accounts should continue to be held by both parties so as to limit the negative impact these events can inflict on a consumer's personal finances.
Credit score reports can be gathered prior to a divorce or at an early juncture to ensure that any financial damage incurred by one spouse remains the sole responsibility of that spouse, according to the III report.
However, money problems are likely to start affecting a marriage even before a divorce, a new report suggests.
The new study, conducted by the University of Virginia, suggests that couples who talk proactively about their money problems are less likely to experience a divorce. The study found that couples who argue about money at least once a week are 30 percent more likely to file for divorce than couples who fight more irregularly or report no fighting about finances.
While communication is one of the cornerstones to any marriage, a recent report conducted by American Express found that 91 percent of survey respondents avoided discussing monetary issues with their spouse or significant other. The poll also indicated that half of all respondents made a purchase that their spouse didn't approve of, while nearly 30 percent hid purchases from their spouse.
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