Credit and Divorce

Have you recently been through a divorce or thinking about it?  If so, you may want to examine issues involving your credit.

During the course of a marriage, a couple may acquire joint credit.  This is usually because when you combine your financial picture with that of your spouse, it may help you present a stronger case to get a mortgage, some other type of loan, or a credit card.  Or you may allow your spouse to become an authorized user of one of your cards. 

Here are the risks:

Individual Accounts:  If you open an individual account and authorize your spouse to use it, the credit activity, if reported, will be on both of your credit reports, however, the authorized user is not contractually liable for paying the debt. (This could become a problem should you divorce, and your ex-spouse runs up charges on your account.  Remember: the authorized user is not required to pay the debt).

Joint Accounts:  However, with joint credit, you and your spouse are both responsible for paying the debts.  Also, your payment history and anything else concerning the activity of your joint card, if reported, will show up on both credit reports.

Important to know:  If it has been decided by a court order that your ex-spouse is responsible for paying off the debt from a joint account, whether it be credit cards, a Home loan, a car loan, etc., if your ex-spouse does not pay it, the lender can legally go after you for payment.  This will also damage your credit report.  Please be aware that court orders do not supersede the original contract you signed with your creditors.

So what do you do to avoid this mess?

First, get a copy of your credit report to find out exactly what you owe.  You and your ex-spouse may have shared credit history that you don’t know about.

Then once you’ve identified your debt, you want to make sure it doesn’t get any worse by you or your ex-spouse making any new charges.

The best thing to do is pay off all joint accounts and/or accounts where your ex-spouse is an authorized user and close them.  (A creditor may close a joint account at either spouse’s written request).  However, in reality most may not have the funds available to be able to do this.

    * If you don’t have the money in your savings to do this – sell a joint asset (maybe your house, boat, etc.) and pay off the debt.
    * Or, each of you could apply for a separate credit card and have equal or agreed upon amounts from the joint accounts, transferred to these separate accounts and pay them off individually, at your own pace, without affecting the other’s credit report.  (Be aware that with a balance transfer usually comes a higher APR).

Divorce can be a devastating situation both emotionally and financially.  Don’t let it be worse than it has to be.  Understand the impact divorce has on your credit and take steps early on in the divorce process to avoid damaging your future.

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