Mary and Bill
recently divorced. Their divorcee 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 with out 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).
Advantage/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 yours (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 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 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 any of 150
consumer topics, call toll-free,
1-877-FTC-HELP (1-877-382-4357), or use the
online complaint form. 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 U.S. and abroad.
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.
account
was opened after June 1, 1977).