Protecting Your Credit During & After Divorce

Protecting your credit after divorce or during the separation period is essential to ensure your long-term financial stability and well-being. Here are some steps you can take to safeguard your credit throughout the divorce process and beyond:

What Happens If You Share Debt With Your Soon-to-Be Ex-Spouse?

Sharing debt with a soon-to-be ex-spouse can complicate matters during and after a divorce. The specific implications depend on various factors. 

Here are some of the important terms you’ll need to know:

Joint Liability

If you and your spouse have joint accounts or co-signed loans, you are both legally responsible for the debt, regardless of who incurred it. This means that creditors can pursue either or both of you for repayment.

Divorce Agreement

During the divorce process, you and your spouse may negotiate the division of debts as part of the overall settlement agreement. This could involve one spouse taking responsibility for certain debts while the other assumes responsibility for others.

Court Order

If you cannot reach an agreement on debt division, the court may decide how to allocate debts between you and your spouse. Courts typically aim for an equitable distribution of marital assets and liabilities, but the specifics vary depending on state laws and individual circumstances.

Creditors' Rights

Regardless of any agreements or court orders, creditors are not bound by the terms of your divorce settlement. If your ex-spouse fails to pay their share of a joint debt, creditors can still pursue you for the full amount owed. However, you may have legal recourse to enforce the terms of your divorce agreement.

Debt Consolidation

If you and your spouse have multiple debts, consolidating them into a single loan or line of credit may be a viable solution. Debt consolidation simplifies your repayment efforts by combining multiple debts into one monthly payment, potentially at a lower interest rate. 

5 Tips for Protecting Your Credit After Divorce

Obtain a Copy of Your Credit Report

The first step to doing is knowing.

Obtaining a copy of your credit report is the first step in understanding your current financial standing. By reviewing your credit report from both major credit bureaus in Canada (Equifax and TransUnion), you can identify any joint accounts with your soon-to-be ex-spouse and assess your overall credit health. 

Close Joint Accounts

Closing joint accounts is crucial for preventing future financial entanglements with your ex-spouse. Work to close joint credit cards, loans, or lines of credit to ensure that no new debt can be incurred jointly. Before closing these accounts, it's essential to pay off or transfer the balance to individual accounts to avoid negative impacts on your credit score. 

Negotiate with Creditors

If closing joint accounts is not feasible, consider negotiating with creditors to remove your name from the account or modify the terms of the debt. This may involve transferring the balance to individual accounts in your and your ex-spouse's names or reaching a repayment agreement that reflects your changed financial circumstances post-divorce. 

Establish Individual Credit

Establishing individual credit is essential for building a strong financial foundation post-divorce. If you don't already have individual credit accounts, such as credit cards or loans in your name only, consider applying for them to demonstrate your creditworthiness independently. If your credit history is fairly short, you’ll want to open these new accounts as soon as possible to start building your financial record.

Seek Legal Advice

Seeking legal advice from a qualified attorney specializing in divorce and family law is crucial for understanding your rights and obligations regarding joint debts and assets. A knowledgeable attorney can provide personalized guidance based on your specific situation and help you navigate the legal complexities of debt division during divorce.