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Credit and Divorce
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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.
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.
Advantages/Disadvantages: 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. If you open an
account in your name and are responsible, no one can
negatively affect your credit record.
Joint Account
Your and your spouse's income, financial assets and credit
history 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).
Advantages/Disadvantages: 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. When two people apply 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 history on jointly held accounts.
Account "Users"
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 yours (if
the account was opened after June 1, 1977). A creditor may
report the credit history in the name of any other authorized
user.
Advantages/Disadvantages: 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. You may 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. On
that basis, the creditor may 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.
For More Information
You can file a complaint with the FTC by
contacting the Consumer Response Center by phone: toll-free
1-877-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer
Response Center, Federal Trade Commission, 600 Pennsylvania Ave,
NW, Washington, DC 20580; or through the Internet, using the
online complaint form. Although the Commission cannot
resolve individual problems for consumers, it can act against a
company if it sees a pattern of possible law violations.
This document was written in January 1998 by the FTC. |
