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 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.
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.
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'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.
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. |
