It is clear that the purpose of a divorce is to sever ties with your spouse. This means dividing financial assets, personal property and making arrangements for the care and custody of minor children, as applicable. However, it is not a cut and dry process, especially when parties have been married for many years. They are tied together in almost every way imaginable, and it is not always easy to undo. It can be very time consuming, particularly when it comes to financial issues.
One large asset that many parties have to dispose of or re-finance is a marital home, or other piece of real property. Sometimes parties will opt to sell the property and share in the proceeds. Other times parties may decide that one party will keep the property and buy-out the other, and re-finance the property within a certain time frame to remove the party’s name who is not keeping the property. It is clear that in these situations the person who will not be retaining the property has some vulnerability until there is a re-finance. What if the retaining party doesn’t pay the mortgage on time? It can impact that non-retaining party’s credit. What people don’t usually realize is that the retaining party also has some vulnerability and exposure with being tied to the credit of the non-retaining party.
Specifically, there are certain instances where banks will run the credit of both parties tied to a mortgage, during the duration of the mortgage, even after a divorce is finalized, just as a matter of process. If one of the parties’ credits takes a dive, the bank may decide this is an issue. They can take many different measures people may not realize, such as cutting off a line of credit or even reducing a credit limit on a person’s credit card, simply because they are tied in some way to the credit of their former spouse, such as through a mutual mortgage, even after a divorce is finalized. It is not with certainty that this would happen, but it is a possibility. Thus, it is a good idea to ensure that you try to sever ties with your spouse financially, and if that means re-financing a piece of property, that you do it as soon as you possibly can, to try and ensure that your credit is not tied to the other person’s credit any longer once the divorce is finalized.