Credit and Divorce
Below is a MRR and PLR article in category Society -> subcategory Divorce.
Credit and Divorce: Understanding Your Financial Responsibilities
Summary:
Divorce can significantly impact your credit. Understanding who is responsible for credit card bills post-divorce is essential.
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When Mary and Bill divorced, their agreement required Bill to pay off their three joint credit card accounts. However, when Bill failed to pay, creditors approached Mary for payment. Despite her arguments that the divorce decree absolved her of responsibility, creditors informed her that they were not bound by the divorce agreement, and both she and Bill were still legally liable for the joint accounts. Consequently, the late payments negatively affected Mary’s credit report.
If you’re going through a divorce or planning one, it’s important to understand the nuances of credit accounts in a marriage, as this knowledge can help you avoid potential pitfalls.
Types of Credit Accounts
There are two primary types of credit accounts: individual and joint. You can authorize others to use either type of account.
- Individual Account: This account is based solely on your income, assets, and credit history. Regardless of your marital status, you alone are responsible for the debt. This account will appear on your credit report and potentially on that of any "authorized" user. In community property states (e.g., Arizona, California, Texas), your spouse may also be responsible for debts incurred during the marriage.
- Pros and Cons: An individual account allows you control over your credit, independent of your spouse’s financial behavior. However, it may be challenging to qualify if you have a lower income.
- Joint Account: This account considers both your and your spouse’s financial profiles. Both parties are equally responsible for the debt, regardless of who manages the household finances.
- Pros and Cons: Joint accounts might offer a stronger financial application due to combined resources. However, both parties remain liable for the debt, even after divorce, unless explicitly resolved separately.
Account "Users"
You can authorize another person to use your individual account. If you designate your spouse as an authorized user, the creditor must report the account's credit history under both your names.
- Pros and Cons: Authorized-user accounts are convenient for individuals who may not qualify for credit independently, like students or homemakers. However, you remain solely responsible for the debt.
Managing Credit Accounts During Divorce
When facing divorce, pay close attention to your credit accounts:
- Maintain regular payments on joint accounts to protect your credit history.
- Consider closing joint accounts or removing authorized users.
- Request creditors to convert joint accounts into individual accounts. Note that creditors are not obligated to make this change; you may need to reapply for individual credit.
Legally, a creditor cannot close a joint account simply due to a change in marital status, but they can do so if requested by either spouse. Mortgages and home equity loans often require refinancing to release one party from responsibility.
By proactively managing your credit and understanding your financial responsibilities during and after divorce, you can better protect your credit history and financial future.
You can find the original non-AI version of this article here: Credit and Divorce.
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