Guide to handling credit during a divorce
Editor’s note: This is a recurring post, regularly updated with new information.
Even the most amicable divorces are messy: dividing assets, hunting for a new place to live and adjusting to a new life, plus custody and child-care arrangements if you have kids.
Handling joint credit card accounts, splitting debts and staying on top of your credit score may be overlooked during a divorce. However, how you handle credit and debt during your divorce could have a lasting impact on your overall financial health long after the papers are signed and finalized.
Here's what you should do.
Dividing credit card debt during a divorce
Debt during a divorce is handled differently across states.
In common law states (most of the U.S.), you are responsible for any debts accrued solely in your name, and you're jointly liable for any debt in the names of both you and your ex-spouse.
However, in community law states (there are nine, including Texas and California), you are jointly responsible for all debt accrued during the marriage — even if it’s only in one spouse’s name.
In your divorce settlement, the judge will issue a decree in line with these rules and any other agreements between you and your ex-spouse. Among other things, your divorce decree states which party (you or your ex-spouse) is responsible for paying various debts — such as stating which person will pay off a joint mortgage.
But there’s a catch that shocks many people. Although the divorce decree binds you and your spouse, creditors generally aren’t.
If you and your former spouse signed a joint loan or credit card contract, the creditor still sees you both as responsible for the debt regardless of what your divorce decree says. If your ex-spouse is assigned responsibility for paying a mortgage but fails to pay on time, late and missed payments can be added to both of your credit reports. Thus, both of your credit scores could suffer.
The scenario above happens all the time. It’s one of the reasons why Experian recommends paying off or refinancing joint debt before the final divorce decree, if at all possible. If your ex-spouse doesn't abide by the divorce decree or fails to make payments, they can be held responsible in court — though your credit report may still suffer.
Protect your personal credit
Coming through a divorce with unblemished credit is tough, but it is possible — especially if you and your ex-spouse agree to the following steps.
Check your credit reports
Watching your credit reports from Equifax, TransUnion and Experian is important. However, it’s especially important during a separation or divorce.
Related: How to check your credit score for free
You can check your credit reports for free once a year at AnnualCreditReport.com. After claiming your freebies, multiple websites let you check your reports for free or sign up for a credit monitoring service to track your reports for a fee.
Related: 6 things to do to improve your credit score
If you want to be extra cautious, check your three reports:
- Before you separate (or as soon as possible afterward).
- Once a month after separation.
Be sure to save copies of your reports. If your ex-spouse opens or attempts to open credit in your name after separation, you'll have a paper trail and can act quickly if problems arise.
Tip: If you’re worried that your former spouse might try to open credit in your name during or after a divorce, a free credit freeze can help protect you.
Separate joint accounts
Separating joint accounts and dividing debt is probably the most difficult financial aspect of a divorce. If you co-signed a loan or credit card with your spouse, the lender believes you’re both responsible for the debt.
Related: Points of View: Should my partner get their own card or be added as an authorized user?
The best way to protect your credit during a divorce is to pay off and close joint accounts as quickly as possible. Try the following:
- Sell the asset (e.g., the home or car) and use it to pay off the loan. If there’s money left over, use it to pay off other joint debts.
- Refinance the loan into one person’s name. Will your ex-spouse be keeping the house or vehicle? If so, it’s best to refinance the loan in their name. If there’s equity available in the home, your ex-spouse may agree to a cash-out refinance, using the available funds to pay off other joint debts, like auto loans or credit cards.
- Close joint credit cards. It's typically best to close a joint credit card account during a divorce. This goes against standard credit advice and might harm your credit score if your credit utilization increases. However, if you don’t close the account, you risk legal liability for late payments and future charges from your former spouse.
- Remove authorized user cards. Even if your former spouse isn’t a joint account holder on any of your credit cards, they may have authorized-user status on your account. If so, call your card issuer and remove your ex. Otherwise, you will be responsible for any future charges if your ex-spouse uses the account.
Build and maintain your own credit
Finally, make sure you have credit established in your own name. This is especially important if you only previously had joint accounts or authorized user credit cards.
Related: How to earn points and miles with fair to poor credit
Need to build credit in your name? A new credit card can be a smart place to start. A properly-managed credit card can do great things for your credit score.
Related: Why Dave Ramsey is wrong about credit cards
If you have many credit cards (or points and miles) from your marriage, consider these additional aspects:
- Are points worth fighting over?
- Who used a card or points program most, and how will you split (or not) those rewards?
- Would closing a card cause you to lose points?
- What value do your rewards have, and can you divide them fairly?
- Can you pool points to help with equitable distribution?
- Can you agree to keep a joint account and use the rewards fairly?
Related: TPG's monthly points and miles valuations
Paying for a divorce with your credit cards
Divorces certainly aren't cheap. We receive regular inquiries about paying attorney fees with credit cards. The answer always depends on whether your attorney accepts credit card payments without additional fees and when you'll pay the bills.
If your attorney doesn’t charge a processing fee for credit card payments, then a large bill (like a divorce) can accrue lots of points. However, even a 2% processing fee can eliminate the benefits of paying by card.
Related: The best cards for large purchases
Also, will you accrue interest on your credit card? If you'll immediately pay your bills in full, using a card to earn rewards can be a silver lining in your divorce. However, if you would carry a balance by paying over time, you'll pay more in the long run and negate the value of the rewards.
Related: The best way to pay your credit card bills
If you pay by credit card, a flat-rate card will be best since attorney fees won't trigger bonus categories on most credit cards. Consider the following:
- Citi® Double Cash Card: Earn 2% cash back on every purchase — 1% when making the purchase and 1% when paying the bill. The card has no annual fee (see rates and fees).
- Capital One Venture Rewards Credit Card: Earn at least 2 miles per dollar on all purchases — a 3.7% return on spending in our valuations.
- Chase Freedom Unlimited: Earn 1.5% cash back on all purchases with no annual fee.
You may feel overwhelmed during a divorce, and protecting your credit may seem unnecessarily complicated. However, ignoring this element can haunt you for years to come. Post-divorce, many people struggle with low credit scores and damaged credit reports, unable to qualify for loans, credit cards or even an apartment. Do everything you can to avoid these problems. Working to protect your credit up front might not be fun, but you’ll be grateful later.
Additional reporting by Michelle Black and Ryan Smith.