Will Divorce Damage Your Credit Score?
Question: NW Edgewood: I am in the process of getting a divorce. Will this affect my credit rating?
A: The inherent act of divorce will not affect your credit score, but, yes, it could fluctuate based on your debts and other aspects of your financial situation.
For example, let’s say you and your future ex owe money on a joint credit card. Even though a judge may decide that your ex is responsible for paying off that debt, your name is still on the account. Therefore, in the eyes of the card issuer, you are still just as responsible. So if your ex doesn’t make payments on time, your credit score will suffer.
If you are considering closing a joint credit card – which is probably a good idea – just understand that this action has consequences as well. Remember that your “credit utilization ratio” represents approximately 30% of your FICO credit score. If you close a card, you reduce the amount of credit available to you. So even if your spending levels stay the same, your credit utilization rate will increase. This will lower your score for a while.
Here’s Allworth’s advice: We strongly recommend that you monitor your credit score and your credit report (yes, they’re two different things) as you go through your divorce. You can view your credit report for free online at annualcreditreport.com (you can get a free report every 12 months from each of the three credit bureaus, so consider staggering when you access it). It’s the easiest way to spot missed payments, new accounts in your name, and potential fraud. You can get your credit score for free from sites such as creditkarma.com, credit.com, or nowadays from many major credit card issuers (always watch out for “add-ons” or “watch programs” additional which may charge a fee).
Q: Peter and Joyce in Deer Park: We just inherited a house from a deceased aunt. If and when we decide to sell, what should we do to pay the least amount of tax?
A: Just like when it comes to investments, a home can have capital gains or capital losses. Likewise, just like with investments, since you have inherited this property, you benefit from what is called an increased cost base. Simply put, this means that instead of using the original purchase value as a cost basis (as you would if it were your own home), you would use the market value at the time of death. from your aunt.
For example, let’s say your aunt bought her house for $ 150,000 and the value increased to $ 250,000 by the time she died. The $ 250,000 – not the $ 150,000 – is your cost base. Therefore, if you were to sell right away for $ 250,000, you would pay no tax. If you decide to wait a bit and sell for, say, $ 300,000, then you will owe taxes on $ 50,000 ($ 300,000 minus $ 250,000).
With that in mind, if you are held and determined not to pay any tax on this inheritance, one of the easiest solutions is to consider selling it as soon as possible so as not to give time to the property of s. ‘appreciate more.
But that’s not your only option. You could make it your primary residence for a few years so that it qualifies for a capital gains exclusion when you sell (up to $ 250,000 for individual filers or $ 500,000 for joint filers). Or you can consider turning it into rental property using a 1031 exchange (but be careful – this strategy can get tricky if you’re unfamiliar with the tax rules behind it).
Allworth’s advice is to consult with an estate planning lawyer and / or tax expert to make sure you choose the best option for your particular situation.
Each week, Amy Wagner and Steve Sprovach from Allworth Financial answer your questions. If you or a friend or family member is having a money problem, please send these questions to [email protected]
Responses are for informational purposes only, and individuals should consider whether a general recommendation in these responses is appropriate for their particular situation based on investment objectives, financial situation, and needs. To the extent that a reader has questions regarding the applicability of any specific matter discussed above to their individual circumstances, they are encouraged to consult with the professional adviser of their choice, including a tax advisor and / or a lawyer. . Retirement planning services offered by Allworth Financial, an SEC-registered investment advisor. Securities offered by AW Securities, a registered broker / dealer, FINRA / SIPC member. Call 513-469-7500 or visit allworthfinancial.com.