The Truth About Divorce and Your Credit Score
There’s a lot of information out there regarding divorce and your credit score. And that’s because the information is power. That is why we are here, ready to assist. Take a look at our top nine questions on divorce today and answer that.
Hopefully, will help ease any fears or anxieties you have about your credit score. And other common issues people have with starting over after a divorce.
Question #1. What exactly is a divorce?
When a husband and wife decide they no longer wish to marry, they file for divorce. They sign formal paperwork stating that their marriage is over. And free to marry other individuals if they so want.
Divorce is a legal procedure that the judicial system must mediate.
Question #2. What are the reasons for divorce that are legal in Australia?
There is just one cause for divorce in Australia — conflicting interests shown by a separation of at least 12 months.
To initiate a divorce proceeding, you must:
Be able to establish irrevocably shattered marriages. This is proved by having been separated for at least 12 months. And married for at least two years or undergoing mandatory Family Court counselling.
Since the Family Law Act was enacted in 1975, grounds like unreasonable behaviour, adultery, and desertion have been declared unlawful.
Before 1975, Australia’s divorce system was “fault-based.” Which meant that blame had to be attributed to one side (and established) for the court to issue a divorce.
Although most contemporary nations have abandoned the old fault-based system, it may surprise you to hear that numerous countries. Like the United Kingdom, continue to function under this framework.
A divorce application may be submitted only when the parties have been separated for at least 12 months in Australia.
If the parties reconcile for three months or longer, the 12-month qualifying period must start.
Question # 3. Will the divorce settle all of my kid and property-related difficulties as well?
Property and children
A divorce decree does not contain provisions for child custody or property distribution.
If you have children under 18, a court may issue a divorce only if the judge is confident that adequate preparations have been made for them. Children and family law contain advice on arranging for the care of your children after the breakup of a partnership.
You may seek property orders before the finalization of your divorce. If you have not received property orders after the conclusion of your divorce and want to do so, you must apply to the court within 12 months. Money and property contain advice about sharing your money and property after the dissolution of a relationship.
Question #4. How can divorce affect one’s credit score?
Divorce can harm your credit score. There are two possible explanations for a credit score decline during a divorce:
1. Creditors disregard divorce judgments.
Divorce is a difficult process that requires detaching joint funds and accounts. If your divorce is complicated, dividing joint-funds may quickly become a tragedy.
The court will enter a judgment referred to as the divorce decree during your divorce. Your divorce order specifies how your marital property and debts will be divided. Including which spouse will be liable for paying each creditor.
For example, if you have a shared automobile loan. The divorce order will specify who gets to retain the vehicle and who is responsible for loan payments.
There is just one issue. Creditors and debt collectors disregard divorce judgments. If a court directs your ex to settle a joint obligation. But he or she does not, your credit may suffer.
2. Joint accounts continue to appear on credit records.
When you and your spouse first establish a joint credit obligation, the account may be added to both of your Equifax, Illion, and Experian credit reports (depending on the lender’s policies).
Divorce does not abolish joint accounts or delete them from your credit records. Your lender will continue to expect both of you to repay the money you borrowed. Plus interest, in the manner, agreed upon originally. Additionally, the account will stay on your credit records regardless of who is held accountable in your divorce order.
Here are several reasons why this may be an issue. If your ex is responsible for payments on a joint account and makes a late payment, the late payment may reflect on your credit reports, potentially affecting your credit.
If a weary ex-spouse makes a series of transactions on a shared credit card account, you will remain liable for the debt. Indeed, even if all payments are made on time, a high credit use rate on a joint credit card may harm both your and your ex’s credit ratings.
Question #5. Will I lose everything in the settlement?
It is critical to distinguish divorce from property settlement as two independent legal processes. Divorce is the process through which a marriage is formally split. A property settlement is the official distributor of property that occurs due to a couple divorcing.
Asset partition discussions may take place while parties continue to live together and can be finalized before the parties’ divorce is finalized or even. In contrast, they continue to live together (though very rarely in practical terms).
Australia is an equitable distribution jurisdiction, which means that upon divorce or the death of a spouse, net income is not equally divided (i.e. 50/50) as “common property.” In Australia, property adjustment is computed using a four-step procedure outlined in section 79 of the Act.
Question #6. How does divorce affect your child’s credit rating?
How does divorce affect your child’s credit rating? It is a question that many people may be wondering when they go through a divorce, but one that many people will not be able to get an answer to. There are steps that you can take though to protect your child and make sure that their credit rating is not affected.
A critical point to remember is that a child’s credit rating does not begin until they reach adulthood. This means that if you are going through a divorce, it is necessary that you consider the influence on your children.
Credit cards and loans are often opened in the name of both parents, but it is easy for children to be left with debts from these accounts even if the other parent has been responsible for taking out the loan or paying the bills. If you want to keep your children from being responsible for any debts you may have, this is one thing that you need to think about carefully when going through a divorce.
It is vital for parents who are going through a divorce to ensure that all financial matters are dealt with properly as part of their settlement. If there are joint accounts, it is important that these are closed, and money is taken out of them so they cannot be accessed by either parent.
Learn More: Important Credit Repair Tips to Teach Our Kids
Question #7. Are there steps you can take to safeguard your credit score before divorce?
Four actions to do to safeguard your credit before divorcing. These methods assist in preventing your credit score from dropping as a result of unexpected debt or delinquent invoices on those remaining joint accounts.
1. Take a copy of your credit report and evaluate which accounts are associated with it.
To safeguard your credit, you must first understand what it includes. This entails being aware of which accounts are associated with your credit profile.
The simplest approach to determine this is to get a copy of your credit file from the three credit agencies (Experian, Equifax, and Illion) in order to distinguish between your individual accounts and joint accounts with your partner.
If you notice any joint accounts, those are the ones for which you and your partner share obligation — and which you should monitor until you and your partner agree on when to cancel them.
2. Quickly separate accounts.
If you and your partner carried a travel or cash-back credit card, any missing, late, or nonpayments would damage both of your credit.
As a result, you should have a personal credit card in addition to any shared cards with your spouse.
3. Consider a credit freeze.
In the unlikely event that an ex-spouse becomes bitter and opens accounts in your name without your approval, you may freeze your credit.
When you keep a freeze on your credit report, no one will be able to obtain new lines of credit in your identity (not even you). While you may freeze your credit for a certain length of time, we suggest that you keep it frozen and only access it when applying for new credit, then immediately close it again.
4. Speak with an Australian Credit Lawyer.
When you meet with an Australian Credit Lawyer, he or she will discuss the actual impact of a divorce on your credit score. Your credit score is the result of many factors, and some are more important than others.
An Australian credit lawyer can help put together your financial plan. This will include protecting yourself from identity theft, ensuring privacy and getting full access to your own financial records.
A good credit lawyer will help you understand any actions you can take to protect yourself in advance.
Question #8. Are there steps you can take to safeguard your credit score during divorce?
1. Obtain monthly financial statements.
Insist on receiving copies of monthly statements for any accounts with outstanding amounts. Carry out the same procedure for any accounts that you are unable or unwilling to terminate for any reason.
In this manner, you can maintain track of the accounts and ensure that payments are paid on time.
2. Don’t battle over the home.
Oftentimes, particularly with women, they desire to remain in the marital home since it is where they raised their children, and they have an emotional relationship to the house.
Clinging to a house post-divorce may have made sense in the past, particularly in places where property values were increasing, and homeowners were accumulating equity.
However, the real estate market has shifted dramatically in recent years. Senior citizens, in particular, are often cash-strapped and burdened by large home obligations.
Now you must ensure that you can really afford the property since it is sometimes more of a responsibility than an asset. The issue is not who will maintain the home but who will leave it. And it is all due to the debt that surrounds the property.
3. Maintain an up-to-date mailing address.
If you move out, it is not just your creditors who should be notified of your divorce. You may submit a change of address card at your local post office or online. This ensures that any invoices, credit card statements, or other financial communication directed only to you will be sent to your new location.
The last item you want is to miss a credit card payment because you forgot about the bill or your ex failed to inform you that the mail was waiting at your old residence.
4. Abstain from buying sprees and vengeance shopping.
Unfortunately, some individuals who are divorcing attempt to retaliate against a soon-to-be ex-spouse or a former companion by going on massive spending sprees. If you’re inclined to do so, regain your composure and reconsider this tactic since it’s usually always a negative choice.
Large credit card bills and other obligations may be difficult to repay in the future, jeopardizing your credit in the months and years ahead.
5. Make prudent use of credit cards before, during, and after divorce.
When going through a divorce, you must continue to handle your normal credit card obligations to the best of your abilities. Ascertain that all payments are made on schedule.
If you are unable to pay in full, make the minimum payments despite the fact that you may have significant legal expenditures or extra expenses associated with your separation and divorce, avoid maxing out your credit cards.
Credit card debt accounts for 30% of your FICO credit score. Your credit score will improve as your credit card debt decreases.
Question #9. Are there steps you can take to safeguard your credit score after divorce?
Here are some tips for helping to protect your financial reputation after divorce:
1) Decide whether you want to keep both credit cards in your name.
If so, keep on top of payments and use them only for emergencies or for expenses related to supporting yourself after divorce.
2) Don’t open any new credit accounts until you have resolved all outstanding issues with the divorce.
Opening new accounts during this period can affect your ability to make timely payments due to the recent change in circumstances.
3) If you have a joint account with your spouse, close it.
If your spouse has a credit card in his or her name only, he or she can close the card.
4) Change your passwords and keep your information up to date.
Prevent your spouse from accessing your financial information. Change your debit card PINs and passwords for all of your bank account websites, and ensure that your ex-spouse cannot readily guess the answers to your security questions.
If you’ve already relocated, be careful to notify creditors and financial institutions of your new location. Not only will this guarantee that critical information reaches the intended recipient, but it will also provide an additional degree of protection from your ex’s snooping.
While the prospect of your ex-spouse attempting to wreck your money after a divorce may seem absurd, it is better to be cautious than sorry. These measures will assist you in safeguarding your funds and establishing a new beginning.
5) Protect your credit score after divorce with the help of Australian Credit Lawyers
Working with an attorney can help you protect your credit score after divorce by helping you keep track of your payments as well as offer advice on how best to handle certain situations if they arise.
For example, if you have shared credit cards with your spouse and they have run up a balance, the attorney may be able to work out an arrangement where they will agree to pay off their portion of the debt.
Conclusion Paragraph
As you can see, the effect that divorce has on your credit is a bit complicated. It’s not as simple as it looks, and many misunderstandings regarding divorce and credit exist. This can serve as a guide for those of you who are planning to go through a divorce and want to know how it will affect your credit score.
If you want to protect your reputation and your credit score, talk to Australian Credit Lawyers immediately. They can help rebuild your credit after divorce.
Let us handle your credit today so you may control your life tomorrow.
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