Protect Your Credit During Divorce

By Elli Davis, January 22, 2011

My last long article was dedicated towards newlyweds. This one is partly related to relationships as well, but from a very different point of view. Unfortunately, a very high percentage of marriages end up in divorce. I'm not going to give you ideas on how to avoid divorce, since I'm not a specialist in this field; but I want to offer you a few tips on how to protect your credit during this not so pleasant period of your life.

First of all, all the documents regarding your credit should be collected. Both of you should go through all of them carefully, so you know all the facts and can see the situation clearly. I know there are some divorces which are perhaps too emotional to be able to discuss the situation properly, but it's better for both partners to calm down for awhile, talk and agree on the next steps to take.

Photo by Darwin Bell

If you have a joint account, and you probably do, you should let your creditors know your marriage is soon to be over. There are many cases in which only one of the partners is listed as responsible for repayments. If it is you, try to ask the contractor if you can be released from this, to cancel the joint account and to create a new, personal one. There are no guarantees that the contractor will indeed do what you ask for, but it's worth a try. As long as the joint account exists, keep on making payments.

In many situations the common property is not sold. If your partner is the one who stays in your home, they ought to try to get new financing solely in their name. Remember they don't necessarily have to qualify for a loan. Make an agreement about this - they may give you the papers about their monthly payments (whether they pay in time), or you simply give them few months/years to stay in the house.

If the debt is too high, it's often better to quickly sell your property and pay it off. You will not go your separate ways completely until you have all the common financial matters resolved. Some people can be hit so severely by having to pay off the debt that they have to file for bankruptcy. It is not a shame, it can happen to anyone. If you simply cannot pay off the debt, you should seek the advice of a specialist before taking this step, but it could ease the situation you are in.

Generally speaking, after, or shortly before the divorce, the smartest thing to do is to pay off all joint debts and everything you own together should be sold. This doesn't always happen, of course, but it seems to be the easiest and the fairest solution for both parties involved. Ideally however, none of us will have to go through divorce.

You might also like

1. Home Renovation Tax Credit
2. Is the First Time Home-Buyers Tax Credit Really as Good as It Sounds?

Posted in Toronto Real Estate News | No Comments »