Marriage
Divorce & Credit
There are two different types of credit
accounts, individual and joint. When you apply for credit-whether it's a credit
card, bank
loan, or mortgage-you'll be asked if you want to open an individual or
joint account. (Even if you establish an individual account, however, you can authorize
another person to use it.).
When you apply for an individual account, the lender
will consider only your income, assets, and credit history. If you are approved
for an individual account, you and only you are responsible for paying off the debt-even
if you are married. The account will appear on your credit report and may appear
on the credit report of any authorized user.
For tax purposes, income in community property states
is considered to belong equally to both spouses, regardless of which spouse actually
earned the income. If you live in a community property state, both spouses may be
liable for the debts of one spouse, and debts may appear on each spouse's credit
report. Be sure to check the regulations for each individual state for any differences.
Currently, the following states are community property states: Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
For spouses who earn little or
no income, it may
be difficult to obtain credit or be approved for a loan without the other spouse
co-signing the application. If you are able to open an account, however, make sure
you establish a strong credit history by making all payments on time.
When you apply for a joint account, the lender will
consider the income, assets, and credit history of both spouses.
Even if only one spouse handles the money and pays
the bills, both spouses are responsible for ensuring that a joint debt gets paid.
Any lender who reports on the credit history of an account held jointly must report
it in both names if the account was opened
after June 1, 1977.
A joint credit application combines the financial
resources of two or more people and may make a potential creditor feel more secure
and therefore more likely to approve the loan or credit card. Be aware, however,
that each person who applied for the joint account is legally responsible to pay
the creditor for the entire amount of the debt. This is true even if a divorce decree
states that one spouse is responsible for paying a debt. A former spouse can adversely
affect the other spouse's credit history on a jointly-held account by paying late,
exceeding the credit limit, or paying less than the minimum amount due.
If you open an account, individual or joint, you
can authorize another person to use the account. Many times, people will authorize
a relative to use the account. That's fine, but remember
that you remain responsible
to the creditor for paying the entire balance. If you authorize your spouse, or
someone else, to use your individual account, a creditor reporting on the payment
history to the credit bureaus will report the account in the authorized user's name
as well as yours. You, however, are the only one liable for paying the debt, not
the authorized user. (These accounts are usually opened for convenience. They are
helpful to people who might not qualify for credit on their own, like students.)
While the end of a marriage is often
heartbreaking, the financial consequences can be equally distressing and can last
longer. Three out of four divorcees remarry within three years, but it often takes
much longer to dig yourself out of divorce-induced debt, much less rebuild a credit
rating
