DIVORCE AND YOUR CREDIT –
DON’T THINK THE COURT CAN ABSOLVE YOU FROM DEBT
If you have already been divorced and did not resolve your credit issues before the decree was signed, it may be too late. If you are going through divorce or if you are thinking about divorce, make sure to look closely at all issues involving credit before the divorce is final.
If you don’t, you might wind up the trap that gets lots of folks who think that the divorce decree will determine who pays what debts. For example, let’s assume that Sam and Sara divorced, and Sam was required by the court to pay off two joint credit card accounts. When he did not do so and the creditors contacted Sara for payment, Sara insisted that she was not responsible and relied on the divorce decree. Since the creditors were not parties to the divorce case, Sara was still responsible legally for paying off the joint accounts. Because the payments were late, Sara found that the late payments were reflected on her credit report. Sure she could take Sam back to court for contempt, but in the meanwhile, there were negative reports on Sara’s credit record.
You can apply for two types of credit: individual and joint. With either, you can allow authorized third persons – like your children -- to use your account.
Individual Accounts
When you apply for an individual account, the creditor only considers your individual income, assets, and credit history. Regardless if you are married or single, you are responsible for paying off the debt on this account which will appear only on your credit report.
The advantage of having individual credit accounts: If you can open an account in your own name, no one else adversely affect your credit record; the disadvantage: if you are a spouse who does not work outside the home or work part-time, you may have a difficult time getting individual credit without the income of your spouse.
Joint Accounts
When you apply for a joint account, the income, assets, and credit histories of both spouses are considered by the creditor. No matter who earns the money or who pays the bills, both spouses are responsible for the debt. When a creditor reports the credit history of a joint account to
credit bureaus, the report must be made in both names.
The advantage of joint accounts: A joint application which combines the financial picture of both spouses may encourage the creditor to make the loan or issue the credit card.
The disadvantages: Since both spouses applied, each is legally responsible to the creditor for the entire debt – even if the divorce decree says one or the other is responsible for making the payments. Additionally, a former spouse can hurt the other spouse’s credit by running up and not paying joint accounts.
REMEMBER: If you open an account and authorize another person to use that account, if the "user" is also a spouse, the creditor who reports the credit history to a credit bureau must report it in the names of the spouse and the user. However, while a "user" may use the account, he or she is not contractually liable for paying the debt – so understand that if you are allowing others to use your credit card, you alone are liable for the debt.
What do you do if there is a divorce?
If you are thinking about a divorce or separation, look into your credit status and your accounts. IF there are joint accounts, make sure to make regular payments or your credit will suffer. It is a good idea to write creditors and have them close all joint accounts or accounts in which your former spouse was an authorized user. Legally, a creditor cannot close a joint account because the parties are separated or divorced; however, the creditor can do so if requested by either spouse. If you do not have credit in your name, you might try to get the creditor to convert the joint account into your name; however, the creditor can require you to reapply for credit individually and then, based on your new application, either extend or deny you credit. A creditor is under no obligation to change joint accounts to individual ones.
REMEMBER: If you are separating or divorcing, make sure not to forget about credit accounts held jointly, including mortgage, home equity loans, and credit cards. Remember that joint accounts obligate both spouses legally – even if the decree provides that one spouse is responsible for making the payments. If you are concerned, ask the court to have the other spouse provide you with the money so you can make sure the payments are made. And make sure to ask creditors to close any joint accounts and, if you need the credit or want to make sure the obligation is paid, try to have the account converted to an individual account or try reopen these accounts as individual accounts.
Your credit record will be hurt if your former spouse does not pay obligations on which you are liable. If you initially signed the credit application, no matter what the court says, you are still legally responsible for payment if your spouse does not pay.
Ó 1997, Flying SoloÒ
