 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.
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. 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).
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. 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.
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 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.
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. 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.
For More Information
The FTC works for the consumer to prevent fraudulent,
deceptive and unfair business practices in the marketplace and to provide
information to help consumers spot, stop, and avoid them. To file a
complaint or to get
free
information on consumer issues, visit
www.ftc.gov or call
toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters
Internet, telemarketing, identity theft, and other fraud-related complaints into
Consumer Sentinel, a secure, online database available to hundreds of civil
and criminal law enforcement agencies in the U.S. and abroad.
Source:
The Federal Trade Commission
|
