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Presented by the
Federal Trade Commission
January 1998
| Mary and Bill recently divorced. Their divorce 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 without 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).
Advantages/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 your's (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.
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.
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 worldwide.
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