While discussing finances with your partner is important at any step in a relationship, it's just as important if, later down the road, you ever choose to part ways.
There are many emotional decisions to navigate when preparing for a divorce, but one of the first things you'll want to pay close attention to is your credit.
According to a 2019 survey conducted by Debt.com with Moneywise.com, 38% of respondents reported that they saw their credit score drop by more than 50 points after separating from their partner. Yet, your credit matters a lot during a divorce since you'll need a good score to finance your new living arrangements and other expenses.
A divorce alone won't impact your credit score, but the actions you take beforehand will play a big part in that. As you and your partner begin the process of separating your financial accounts, there will be a period of overlap in which one or both of you may still have access to shared money and credit lines. While you hash out the important details about how to divide things evenly, you'll want to ensure that the accounts you opened while you were on favorable terms don't become a liability now that you don't see eye-to-eye.
Below, Select spoke to two experts about the four steps they recommend you take to protect your credit before getting a divorce. These steps help ensure that your credit score doesn't plummet from surprise debt or unpaid bills on those lingering shared accounts.
1. Pull your credit report and review which accounts are linked to your credit
To protect your credit you first need to know all that it entails. This means knowing exactly what accounts are linked to your credit profile.
"Whether married for a few years or a few decades, it's likely you haven't kept track of all the accounts tied to your credit," Priya Malani, a founding partner of Stash Wealth, a millennial-focused financial-planning firm, tells Select.
The easiest way to check this is to pull your credit report from all three credit bureaus (Experian, Equifax and TransUnion) so you can differentiate between your personal accounts and the joint accounts you share with your partner. Right now through April 2021, you can pull your credit report for free on a weekly basis at AnnualCreditReport.com.
If you see any joint accounts, those are the ones you and your partner share liability for — and the ones to keep an eye on until you both decide on when to close them.
You'll also want to note any of your credit card accounts for which your spouse was added as an authorized user. For these, know that you can call your credit card issuer and have your spouse removed as an authorized user if you don't want them to charge to the account.
Just as important, make sure to remove yourself as an authorized user from any of your spouse's cards so their payment activity (or lack of) no longer gets reflected in your credit report. It's typically easy to remove authorized users from credit cards.
2. Separate accounts as quickly as possible
If you and your partner were joint account holders on a shared travel card, such as the popular Chase Sapphire Reserve® or on a cash-back card like the Citi Double Cash® Card (see rates and fees), any missed, late or nonpayments on these will adversely affect both you and your partner's credit.
"Divorce generally does not absolve one party of financial responsibility in a joint contract," Wilson Muscadin, financial coach and founder at The Money Speakeasy, tells Select. Since you both could be on the hook for one person's spending, Muscadin suggests closing out all joint accounts rather than splitting up who is responsible for which ones.
For this reason, you will want to make sure you have access to a personal credit card in addition to any joint cards you share with your partner.
Before closing a joint account, you and your partner will both need to agree on closing it. It's best to redeem the rewards you both had earned on that card together so that the division is equal. Then call your card issuer to close the account.
Afterward, you'll want to follow up by checking your credit report to ensure the account is longer reported. Note that you and your partner's credit scores may have a temporary dip from closing the joint credit card, but your score will likely go back up once you open a new card and make consistent on-time payments.
Until your joint accounts are separated, Malani suggests monitoring the account's activity while both of you still have access. This way, you can be alerted to any unusually large or frequent charges that your partner may make without telling you.
Likewise, you should note any recurring charges, like subscriptions, that you may be paying for on the joint card before you close it. An easy way to find them is by downloading your annual credit card statement and observing the recurring charges that hit every month.
"You'll likely want to cancel these charges or move them to an individual card," Malani says.
3. Contact your creditors to let them know the change of status
Your credit card issuer or lender will want to know the change in you and your partner's marital status, so they should be one of the first calls you make when getting your credit in order.
If the joint credit card is completely paid off, the two parties just need to agree to close the account. But if there is an outstanding balance on the card, the card issuer will most likely require you and your partner to pay it off completely before being able to close the account.
"There may need to be negotiations with the ex-spouse to detangle joint accounts," Muscadin says. Your creditor can discuss options that may include a payment plan, selling an asset or refinancing the debt onto an individual account. Whatever you decide, Malani suggests getting the agreement in writing.
And if you don't think your partner will follow through on their half of the balance, you can always pay it off in full and close the account just for your own peace of mind, says Muscadin.
And you wouldn't be alone: In the aforementioned Debt.com/Moneywise.com survey, 43% of respondents said they had taken over sole responsibility for a debt they once shared in marriage.
There is, however, an option to quickly close an account when you can't pay off the balance in full: you can try transferring the debt to an individual credit card account with a balance transfer.
The best balance transfer credit cards offer an introductory 0% APR for a specified length of time so you can pay off that lingering balance without accruing interest.
For example, cardholders of the Citi Simplicity® Card can benefit from 0% interest for 21 months on balance transfers from date of first transfer and 0% interest for 12 months on purchases from date of account opening (after, 19.24% - 29.99% variable APR; see rates and fees). Balance transfers must be completed within four months of account opening. There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5). With a card like this, you would have almost two years to pay off the debt from the joint card you closed, with no additional interest.
4. Consider freezing your credit
In the extreme case that an ex-spouse would become vindictive and open accounts in your name without your consent, you can take the cautionary step of freezing your credit.
Credit freezes are helpful in general, but they can be a lifesaver "in situations where you may be concerned an ex-spouse may be financially irresponsible or financially abusive," Muscadin says.
When you freeze your credit, no one can open new lines of credit in your name (not even you). It's free and easy to do by contacting each of the three credit bureaus. While you can freeze your credit for a set period of time, we recommend keeping it frozen and only opening it back up when you are applying for new credit, then closing it again right after.
