Don’t Let Divorce Destroy Your Credit

You never really know a man until you divorce him!” – Zsa Zsa Gabor

The nine-times married (and divorced) 89-year-old actress was alternately proud and demure when sharing her checkered marital past and I don’t know the details of her divorces, but it is said that when she divorced hotel heir Conrad Hilton (Great Grandad of a little girl named Paris?) she got the house but no mortgage–lucky girl. 

And back in Zsa Zsa’s hey-day they didn’t have to worry about pesky credit reports.  (no disrespect to male readers–just reverse the advice!) Women who “get the house” today, most likely also get the mortgage, property taxes and any number of other debts that may have jointly accumulated throughout the union.

Credit Knowledge is Power!

Knowledge is power and if there is a divorce looming in your future it is important to know how it can affect your credit.  Divorce has the potential to destroy your ability to retain ownership of your present home and it can also put up road blocks to future home ownership. 

When we think of it as our marital home, most of us think of it as our greatest asset, however, once divorce enters the picture, this symbol of comfort and safety can also represent our largest liability. 

Many couples who initiate a divorce seeking to retain custody of the home may find themselves months later embroiled in a battle to remove the “hot potato” of a mortgage from their credit.  Here are some things to remember.  This advice applies not only to married couples, but to any two or more people who sign jointly for any type of  credit including a home mortgage.

What You Can Do to Protect Yourself

1. Close all joint accounts and re-open desired accounts in your name only.
2. Request in writing that you be removed as an authorized user from any open accounts to which your partner may have added you.
3. Remember that you, your spouse or your partner can only be removed from a mortgage debt through the process of a home refinance or you both continue to be responsible for the debt. Therefore, if the mortgage is not paid both of your credit scores suffer.
4. Determine your equity in the home by identifying the market value. Have the property appraised by a real estate appraiser who is licensed in your state of residence.
5. If refinancing to remain in the home is an option, contact a licensed mortgage professional or a local bank that offers mortgage products to see what your options are. You might refinance in your name, pay your ex an agreed upon amount of equity and you stay in the property. Conversely, your ex might refinance, pay you an equity settlement, and he (or she) remains in the property.
6. In today’s market there might not be any equity to share. If you are separating and the home’s value has dropped, this is the time to talk to an attorney to determine what action should be taken.
7. If refinancing is not an option, be prepared to sell the home, pay off the debt and start over with a new home purchase.

Not Preparing For a Divorce?

The ups and downs of life create issues for all of us that any number of situations might put our home and/or the equity in our home in jeopardy. Divorce is just one of several economic disasters that can befall any of us. Unexpected illness, change in employment, unemployment or the death of someone in your immediate family could also create financial pressure that could involve a necessary change in your mortgage. To be on the safe side keep all home and home mortgage documentation in a safe place.

In case you aren’t as fortunate as the mortgage-free Zsa Zsa and you find yourself in the middle of a divorce, the first thing you should do is get your credit analyzed. You may be surprised to learn that there are ways to accomplish a home refinance, pay your debts, attorney’s fees and your spouse while keeping your payment within your comfort zone.

Be Aware of the Following

1. You and your spouse are both responsible for anything you signed together including your mortgage, credit cards, auto loans, leases, home equity loans and tax returns.
2. A “Divorce Decree” may propose who gets the house and which debts each party is responsible for, but refusing to pay the monthly mortgage and/or credit card bills until the situation is resolved can permanently destroy the credit of both parties.
3. Late payments or no payments on any joint credit will show up on the credit reports of all credit applicants.
4. Signing a Quit Claim Deed to remove yourself from the title of the property will not absolve you from the debt of the mortgage!