Credit and Divorce

     When it comes to Credit and Divorce it is important to understand how to handle this situation in the best possible way or you may face a negative effect on your personal credit rating! Unfortunately, the laws that govern credit and those that deal with divorce do not mesh very well. Therefore, having a divorce decree alone does not necessarily release you from credit obligations. Huh, you say? Lets explain in detail.

There are two basic types of credit accounts that relate to marriage. The first is an individual account and the second is a joint account. With Credit and Divorce it is these two types of accounts you must deal with carefully.

Individual Accounts - Credit and Divorce

     An individual account is a credit account where you alone applied for and where approved for credit based on your income, credit and assets. As a result you are the sole person with access to that credit and the sole person responsible for the repayment of that credit. You can apply for an individual account at anytime regardless of if you are single or married.

Joint Accounts - Credit and Divorce

     A joint account is a credit account where you alone with your spouse applied for and where approved for credit based on both your incomes, credit history and assets. As a result together you both have access to that credit and you both are responsible for the repayment of that credit.

     Ok, so now you know the difference between individual and joint accounts, but how does that relate to credit and divorce? Simple, regardless of your divorce decree you are both responsible for the repayment of joint accounts after your divorce. So if your divorce decree says your former spouse is responsible to repay a credit card you held jointly and you are not, it means nothing to the creditor. In other words, if your former spouse stops paying the credit card bill the creditor can and will come after both of you for repayment and they will report late payments on both of your credit reports. Not fair your thinking, because you agreed your spouse would take care of that debt. Well it doesn't matter! So what can you do? You can properly handle your credit and divorce to avoid this possibility.

     The first thing to do is identify all of your credit accounts both individual and joint. Then determine which are joint in both your names and which are individual in each of your names. Then find a way to pay the joint accounts and close those accounts if possible. The best way to do this is acquire a new loan as an individual to pay off the joint loan. For example if you are keeping one car and your spouse another, both of you apply for financing on an individual level for the car you are keeping. Now each of you has an individual loan on the car you are keeping and paying for. This is far better than keeping both cars in both names and you paying for the one you kept and your spouse paying for the car they kept. In that case, if one of you falls behind on payments it will effect the credit of the other.

     Beyond the above advice, you should also close individual accounts that your spouse or you were an authorized user. The reason is because creditors also report the credit history of these accounts to the credit reports of both the individual account holder and the authorized user. So as with joint accounts, if your spouse stops making payments on that account it will show up on your credit report too. Also, if you live in a community property state such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin you and your spouse may be responsible for debts incurred under individual accounts while you were married. Consulting with a qualified attorney in this situation would be advised.

     If you are not able to pay off joint accounts and individual accounts with authorized users you can ask your creditors to convert those accounts to individual accounts but they are under no obligation to do so. If you end up with some of these accounts that remain after your divorce you must make sure payments are made in full and on time even if you are not the responsible party for that particular debt in your divorce decree. This need will only end once the debt is paid in full and being diligent in this matter can help you save your credit should something happen!

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