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Credit and divorce

Washington couples seeking to split are generally confronted with complicated financial questions. Decoupling credit in dissolution of marriage can present some surprising issues.

It is important to consider the possible indirect effects that divorce can have on credit at the beginning of the process of dividing assets. Credit scores can be protected if special attention is paid to planning ahead.

Many people do not understand that a divorce decree does not necessarily affect obligation to pay a debt. A divorce decree can assign responsibility for debt within the couple, but the lending institution can still demand payment from anyone named on the loan. Missed or late payments, regardless of the reason, can negatively affect credit scores.

It is possible to refinance loans so that they are consistent with the divorce decree, depending on the loan and the specific requirements of the settlement or order.

Car loans are usually straightforward to deal with in the context of a divorce. The title of the car can be changed to indicate the name of the party who will keep it and then the loan can be refinanced accordingly. After refinancing, the spouse whose name was taken off the loan is not responsible for payments.

Credit cards can also be changed to reflect the divorce decree. The party not responsible for the debt can have his or her name removed from the account. Thus, only the spouse whose name remains on the card will be responsible for the debt.

Real estate can be considerably more complex to divide equitably. The easiest way to address marital property where both spouses' names appear on the mortgage is to sell it, pay off the mortgage and divide any remaining proceeds.

Often, though, the spouse who retains primary custody of any children will want to stay in the house. In these cases, sometimes the house is sold to the spouse that can qualify for a new mortgage and this is not necessarily the person who stays in the house. It can be incredibly difficult if a non-resident spouse stops paying the mortgage in violation of a settlement or order. The mortgage company can foreclose regardless of what the divorce decree stipulates.

Considering the worst-case scenario with regard to credit in a divorce can save credit scores later.

Source: MSN Money, "How divorce affects your credit," Rob Berger, August 9, 2012

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