Credit and Divorce
|Mary and Bill recently divorced. Their divorce
decree stated that Bill would pay the balances on their three joint
credit card accounts. Months later, after Bill neglected to pay off
these accounts, all three creditors contacted Mary for payment. She
referred them to the divorce decree, insisting that she was not
responsible for the accounts. The creditors correctly stated that
they were not parties to the decree and that Mary was still legally
responsible for paying off the couple’s joint accounts. Mary later
found out that the late payments appeared on her credit report.
If you've recently been through a divorce—or are contemplating
one—you may want to look closely at issues involving credit. Understanding the
different kinds of credit accounts opened during a marriage may help illuminate
the potential benefits—and pitfalls—of each.
There are two types of credit accounts: individual and joint.
You can permit authorized persons to use the account with either. When you apply
for credit—whether a charge card or a mortgage loan—you'll be asked to select
Individual or Joint Account
Individual Account: Your income,
assets, and credit history are considered by the creditor. Whether you are
married or single, you alone are responsible for paying off the debt. The
account will appear on your credit report, and may appear on the credit report
of any "authorized" user. However, if you live in a community property state
(Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington,
or Wisconsin), you and your spouse may be responsible for debts incurred during
the marriage, and the individual debts of one spouse may appear on the credit
report of the other.
you're not employed outside the home, work part-time, or have a low-paying
job, it may be difficult to demonstrate a strong financial picture without
your spouse's income. But if you open an account in your name and are
responsible, no one can negatively affect your credit record.
Joint Account: Your income,
financial assets, and credit history—and your spouse's—are considerations for a
joint account. No matter who handles the household bills, you and your spouse
are responsible for seeing that debts are paid. A creditor who reports the
credit history of a joint account to credit bureaus must report it in both names
(if the account was opened after June 1, 1977).
application combining the financial resources of two people may present a
stronger case to a creditor who is granting a loan or credit card. But
because two people applied together for the credit, each is responsible for
the debt. This is true even if a divorce decree assigns separate debt
obligations to each spouse. Former spouses who run up bills and don't pay
them can hurt their ex-partner's credit histories on jointly-held accounts.
If you open an individual account, you may authorize
another person to use it. If you name your spouse as the authorized user, a
creditor who reports the credit history to a credit bureau must report it in
your spouse's name as well as in your's (if the account was opened after June 1,
1977). A creditor also may report the credit history in the name of any other
User accounts often are opened for convenience. They benefit people who
might not qualify for credit on their own, such as students or homemakers.
While these people may use the account, you—not they—are contractually
liable for paying the debt.
If You Divorce
If you're considering divorce or separation, pay special
attention to the status of your credit accounts. If you maintain joint accounts
during this time, it's important to make regular payments so your credit record
won’t suffer. As long as there's an outstanding balance on a joint account, you
and your spouse are responsible for it.
If you divorce, you may want to close joint accounts or
accounts in which your former spouse was an authorized user. Or ask the creditor
to convert these accounts to individual accounts.
By law, a creditor cannot close a joint account because of a
change in marital status, but can do so at the request of either spouse. A
creditor, however, does not have to change joint accounts to individual
accounts. The creditor can require you to reapply for credit on an individual
basis and then, based on your new application, extend or deny you credit. In the
case of a mortgage or home equity loan, a lender is likely to require
refinancing to remove a spouse from the obligation.
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