Divorce can be a costly process for both parties involved. Though divorce will impact individuals' finances, there are some myths about how divorce impacts credit that Colorado residents should be aware of.
It is unlawful for lenders to inquire about marital status unless it will impact a loan, which it generally will not. While the legal aspects of a divorce will not necessarily impact a credit score, the cost of divorce might cause problems for finances. Some situations can catch newly divorced individuals off guard.
One such situation involves debt that is settled in the divorce decree. Divorce settlements will often split debts between the divorcing couples as part of the division of marital assets, neatly assigning some debt to one person and other debt to the other. The catch is that division in the divorce decree is meaningless to lenders. The only thing that matters to lenders is the name (or names) on the loan accounts. This means if a person's ex-spouse was given the car loan debt as part of the divorce decree but both names are still on the car loan, then they are both responsible for getting that loan paid. If the ex-spouse defaults on the loan, it will still impact both credit scores.
Some costs of divorce are simply unavoidable, but there are many ways to make a divorce as smooth and inexpensive as possible. An attorney could help a client explore options for lowering the cost of their divorce, such as mediation.
Source: GO Banking Rates, "5 Ways Divorce Can Affect Your Credit Score," Morgan Quinn, Feb. 27, 2015