Credit & Divorce: What You Need to Know

Happily ever after doesn’t always happen. When divorce strikes, you need to know what is going on with your finances, and how non-payments could affect you and your credit rating. There are two types of credit accounts and each one affects your credit rating differently.

Individual Accounts
Companies grant you individual credit accounts based on your income, assets, and credit history. You alone are responsible for individual credit accounts. Your payment status will show up on your credit report. You can make other individuals “authorized users” on your account. This gives them access to use the credit, and payment status may show up on their credit report as well. However, the authorized user is normally not responsible for paying the debt. The exception is in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) where you and the authorized user, if it’s your spouse, may be responsible for paying the debt.

Joint Accounts
Companies grant joint credit accounts based on you and your spouses income, assets, and credit history. This is often useful when one spouse doesn’t work outside the home. Payment status is reported on you and your spouse’s credit history and you are both responsible for repaying the debt.

What Happens in a Divorce
Knowing what accounts you are responsible for is very important during a divorce. Although a judge may assign your spouse an account to pay off, if you are listed on the account with the creditor, ie. you have a joint account, you are still responsible to the creditor for the debt. This is where most people let the guard down. You believe that since your spouse was ordered by the judge to pay a debt, that your spouse will in fact pay the debt and you aren’t responsible for it. But what happens when your spouse doesn’t pay the debt? The information goes on YOUR credit report! Divorce decrees don’t remove responsibility for debts.

What You Can Do
Make sure payments are up to date on all your individual accounts and your joint accounts during a divorce. Joint accounts can be changed to individual accounts to move responsibility to only one party. Depending on the type of credit this could be as easy as asking to have the other individual removed, but you may have to refinance the debt in order to make it an individual account, such as mortgages. Keeping honest communication with your spouse may be key to keeping your credit history in good shape, but it will be worth it in the end.

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