Divorce is a difficult time. No one wishes to go through this process. While divorce is complicated with a lot of other issues, financials play a major role, too. As marriage joins everything in harmony, including your financials, divorce needs to separate them. Our debt counselors know that it gets tricky when it comes to your credit and paying off debt in the overall divorce process. Let’s look at credit and divorce in a little more detail.
Here’s what to consider with credit and divorce.
Credit and Divorce – A Not So Friendly Relationship!
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 you already have can prevent potential mishaps. Depending on whether you have joint or individual credit accounts, the circumstances you face will vary.
Individual Account
If you had individual accounts during the marriage, you are solely responsible for your credit and debt management plan. Therefore, managing your credit and divorce is up to you. 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. Also, the individual debts of one spouse may appear on the credit report of the other.
Joint Account
Your income, financial assets, and credit history, as well as your spouse’s, are considerations for a joint account. No matter who handles the household bills, you and your spouse are responsible for settling credit card debt. The credit history on a joint account is reported under both names.
Authorized Users
During your marriage, even when you had an individual account and you added your spouse as an authorized user, the picture is different when it comes to credit and divorce. The creditors will report credit history under both you and your spouse’s name.
Credit and Divorce – Considerations
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 into individual accounts.
By law, a creditor cannot close a joint account because of a change in marital status, but can do so at the request of either spouse. A creditor, however, does not have to change joint 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 a mortgage or home equity loan, a lender is likely to require refinancing to remove a spouse from the obligation.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.
