Divorce and Debt Who Gets Stuck with the Credit Card

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 without your spouse's income. If you open an account in your name and are responsible, no one can negatively affect your credit record.

Joint Account
Your and your spouse's income, financial assets and credit history 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).

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 yours (if the account was opened after June 1, 1977). A creditor may report the credit history in the name of any other authorized user.

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. You may ask the creditor to convert these accounts to 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. On that basis, the creditor may 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.

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