Protecting your credit during divorce | refinance to buyout spouse’s equity
Protecting your credit during a divorce
Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication can lead to the demise of a spouse’s credit. Depending upon how finances are structured, it can sometimes have a negative impact on both parties. Take a proactive approach and create a specific plan to maintain your credit status. Create a spreadsheet, and list all of the accounts that are currently open. Have your loan officer pull your copy or pull a free one online. List creditor name, contact number, the account number, type of account (e.g. credit card, car loan, etc.), account status (e.g. current, past due), account balance, minimum monthly payment amount, and who is vested in the account.
When it comes to your secured accounts, your best option is probably to sell the assets. This way the loans are paid off and your name is no longer attached. The next best option is to refinance these loans. In other words, you buy out your ex’s equity. The purchasing spouse must qualify for the loan on their own. Your last option should be to keep your name on the loan. If you’re not the one making the payment, your credit is truly vulnerable and it’s so easy for you to get hosed. If you decide to keep your name on the loan, make sure your name is also kept on the title so you’re not stuck paying for something that you don’t legally own.
Know which spouse (if not both) is vested on your unsecured accounts. If you are merely a signer on the account, have your name removed immediately. If you are the vested party and your spouse is a signer, have their name removed. Close any joint accounts (both parties vested) that do not carry a balance. Freeze any jointly vested accounts that carry a balance to ensure no future charges can be made to the accounts. If you do not have any credit cards in your name, obtain one before freezing all of your jointly vested accounts so you may transfer any joint balances into your account, guaranteeing they’ll get paid.
One 30-day late payment can drop your credit score as much as 75 points. Know that a divorce decree does not override any agreement you have with your creditors. Regardless of which spouse is ordered to pay by the judge, not doing so will affect the credit score of both parties.
Tags: buy out spouses equity, protecting credit, refinance because of divorce
January 18th, 2008 at 1:59 pm
Hello,
If I were to buy out my spouse, do I get a heave tax burden?
This site has been helpful, Thank You
January 21st, 2008 at 11:18 am
David, I don’t know the specifics of your situation but from the limited information, you may benefit from individual ownership with a larger (sole) tax deduction on the property vs. jointly with a spouse. I would be happy to discuss your situation with you further.. John
January 25th, 2008 at 4:00 pm
[…] from your earlier refi, provided that you refinanced with a different lender. If you did a refinance with the same lender, the points must continue to be deducted over the life of the […]
August 4th, 2008 at 11:30 am
If you buy someone out of a mortgage, how do you detrimine the other’s value to the house? How is it detrimined? What are the factors that pay a role in the entire process?
And would I also need to do a warranty quit deed to become sole owner of the property?
August 4th, 2008 at 12:07 pm
Steve, sit down with your Loan Officer and settlement attorney to hammer out your questions… Looks like you’ll want to grab your accountant as well. Then all has to be agreed by the party you are buying out.