There are many ways your ex can make your life hell during a divorce, but there’s one you might not have expected: wrecking your credit.
While simply getting a divorce can negatively affect your credit score due to closing of joint accounts and credit inquiries from applying for new credit, your ex can take actions — intentional or not — that can cause even bigger problems, says Jeffrey Sklar, managing partner of Sklar, Heyman, Hirshfield & Kantor, a New York CPA firm. Sklar is also licensed in financial forensics and has been hired to comb through the finances in many messy divorce cases.
From vacations with lovers on a shared card with a spouse to clandestine accounts to spending sprees designed to get back at exes, Sklar says he has seen it all.
Just how do you head off credit disaster during your divorce? Here are five ways your soon-to-be ex can harm your credit, and how to minimize the damage:
1. Revenge spending. “It happens a lot when one spouse has been in a relationship outside the marriage and someone’s mad,” Sklar says of spending to get back at a spouse. For example, after former Oasis lead singer Liam Gallagher called his wife to confess he’d fathered a “love child,” she went on a “revenge spending” spree, Gallagher claimed in court, according to media reports. A judge disagreed, saying she was simply spending like the wife of a rock star. And it’s not just celebs: one divorcing wife found out her husband had leased a Bentley to drive another woman around town, so she went out and “spent a boatload on jewelry,” Sklar says. Men do it, too. A husband went on an $8,000 strip club spending spree two days after he and his wife split, Sklar says. “Now that’s on the credit card, and it’s maxed out,” Sklar says.
What to do: If your ex charges up debt on a joint card or one on which you’re the primary cardholder and they’re an authorized user, it can have a big impact on your credit score. It also puts you on the hook for the bill. If your ex is listed as an authorized user on one or more of your credit cards, contact your card issuer right away to have them removed, says Stephen Lesavich, co-author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.” That would head off any revenge spending on your cards, he says. If you share jointly held cards, pay them off and close them if you suspect potential foul play.
2. Secretly closing accounts. “When a card gets closed, your credit can take a big hit,” Lesavich says. When he was getting divorced, his wife closed all joint cards without telling him, he says. He didn’t have any cards in just his name, and a judge ordered the couple not to apply for new cards during the divorce. His credit score dropped by triple digits, and he lived for a year with no plastic to use in a pinch. “It made me really nervous,” he says.
What to do: Open one or more cards in your own name before the divorce so you don’t get stranded without a card, Lesavich says. Adding new available credit will prevent your score from taking as big of a hit when you close joint accounts, which will reduce your total available credit and length of credit history, both of which impact your credit score. If possible, calmly decide together when to close joint cards, he says.
3. Not paying off joint accounts. Exes sometimes have trouble making ends meet after a split. “Couples living apart need more money than couples living together,” Sklar says. A divorce settlement may divvy up debts, ordering the husband to pay one joint debt and the wife another, but creditors don’t care what it says, says Ed Boltz, president of the National Association of Consumer Bankruptcy Attorneys.
If you have joint debts, such as one where you or your spouse co-signed, you’re each 100 percent responsible. “If you have a joint credit card with a $5,000 balance, Chase isn’t going to come after you for $2,500 and your spouse for the other $2,500,” he says. If your ex files for Chapter 7 bankruptcy, the kind in which many debts can be wiped out, and a joint debt gets discharged in the bankruptcy, the creditor can come after you, Boltz says. Also, late payments and other negative marks on the account can ding your credit. “Your ex can really continue to drag you down,” he says.
What to do: Make sure you continue to receive statements and keep online access for any joint account your ex is supposed to be paying off, Boltz says. That way, you can find out if a payment is late before a blemish shows up on your credit report. If your ex is late on a bill, you can pay before your credit gets damaged. “You have the choice: pay it yourself or take the hit,” he says. If you find out your ex is filing bankruptcy, contact your divorce attorney right away to decide what to do. “There may be a fairly short timeframe to file objections,” he says.
4. Failing to get a new home loan. “Another big issue is the mortgage,” says Brette Sember, author of “The Complete Credit Repair Kit” and “The Complete Divorce Guide.” If you’re the one who has to pack up and leave the marital home, but your name is on the mortgage, a judge may order your ex to refinance the house to remove your name from the loan. If your former spouse fails to refinance and doesn’t stay current on the payments, that will affect you. “Your credit rating can be ruined when this happens,” Sember says. Even if your ex makes payments on time, it still will be hard for you to get a new mortgage with your name on the old one, Sember says.
What to do: Know that it’s common for one spouse to be unable to refinance a mortgage on his own, often because his solo income is too low, Sklar says. Work with your divorce attorney to address this in your divorce agreement, he says. For example, you might decide that if a refinance doesn’t happen in a certain timeframe, it triggers a sale of the house. Or, you could say that if the spouse in the house fails to make a payment, the other can make it and subtract that from other bills owed. “A refinance is ideal, but it doesn’t always work,” he says.
5. Stealing your identity. “Exes are a huge source of ID theft,” says Leasha West, a Michigan wealth strategist who has worked with divorcing clients. “They know all your info: your address, your mom’s maiden name and your Social Security number,” she says. The ID Theft Resource Center, a nonprofit that helps victims of ID theft, offers a fact sheet on how to deal with identity theft by a spouse or ex-spouse. Never assume your ex wouldn’t use your information to open a new account. “They’re your ex for a reason,” she says.
What to do: Sign up for a credit monitoring service and check your credit reports regularly for any inquiries you don’t recognize, West says. Also consider putting a freeze on your credit with all three credit bureaus, says Katie Gampietro Burke, certified financial planner in Florida. Costs vary by state, but it’s about $10 for each bureau (Equifax, Experian and TransUnion) or $30 total. That means no one can get new credit in your name, including you, until you lift the freeze, Burke says. “That’s one way I like to protect clients,” she says.
The good news: You should be able to see the beacon of good credit at the end of a divorce, Lesavich says. Once you’ve parted ways with an ex who may have wrecked your score, you can rebuild your credit, along with your life. In fact, it took only a little over a year for his score to rebound after his divorce.
“Once you’re out there doing the stuff you’re supposed to do, your score goes back up pretty quickly,” he says.
“Debit cards can be obtained at a very young age,” explained Stephen Lesavich, lawyer and author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.” “For example, my 17-year-old son has a parent-supervised, high-school checking account at my bank and a debit card was issued for this high-school checking account, which he tied to a mobile pay system on his mobile phone.” Credit cards generally cannot be obtained until you are 21, unless there is a co-signer or a child is added as an authorized user to a parent’s card account.