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.)

Quick Facts About Divorce and Your Credit

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

• If you plan to divorce, pay special attention to joint credit accounts, such as your mortgage, home equity loans, and credit cards.
  
• Ask creditors to close joint accounts; then try to convert or reopen the accounts under your name only.
  
• Joint credit accounts are the responsibility of both spouses, even if a divorce decree asserts that one spouse responsible for paying off the joint account. Creditors are not a party to divorce agreements, so it is your responsibility to see that your spouse fulfills his or her obligations under the decree.
  
• Your credit will suffer if your joint accounts are not paid on time every month. If, for example, your ex makes charges on a jointly held credit card and then refuses to pay the balance, it will show up on your credit report and may prevent you from getting additional credit or loans.