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 one type.
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.
If 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).
An 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
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 authorized user.
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
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.