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Does divorce have to ruin your credit?

The simple answer to this question is no, it does not. There is almost always some impact to each party's credit, but it does not have to be such that your credit is in ruins.

In order to make that happen, you will need to take care of some housekeeping issues with your creditors as soon as possible after you and your ex-spouse make the decision to divorce. You need to understand the difference between joint and individual accounts, along with how allowing an "authorized user" affects those accounts.

What's the deal with joint accounts?

In order to obtain a joint account, a creditor or lender looks at your and your spouse's financial assets, credit history and incomes. You both remain responsible for the entire debt, even after a divorce. In most divorces, one party agrees to pay certain debts, but that means nothing to a creditor. It has the right to pursue payment from both parties as long as they remain tied together by the debt.

The creditor reports activity on the account on both individuals' credit reports, even after the divorce. In order to avoid this eventuality, you would need to remove your name from any joint accounts that you do not expect to remain responsible for after the divorce. Your creditors may not be willing to do so just because you ask. Each one may have a different way of handling the situation. For instance, your mortgage lender will probably require the party keeping the home to refinance the mortgage before releasing the other party from the debt.

What's the deal with individual accounts?

If you open an account on your own, using only your credit history, income and financial assets, you own that debt. The creditor only looks to you for payment. If you have an authorized user on your account, activity may be on his or her credit report as well.

You will be responsible for these accounts after the divorce. However, if your spouse is an authorized user on the account, make sure to remove him or her from the account completely. Otherwise, he or she may continue to use the card, but you will remain responsible for the full amount of the debt even for those amounts your spouse added to the debt.

You may need help dividing up your debts and obtaining a release from those debts if the other party agrees to take them on after the divorce. You may also need assistance resolving the issue of financial responsibility with the creditors holding debts you will not be responsible for paying in your settlement.

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