If you’ve recently divorced or are going through
a divorce, one of the important
issues that you should settle is how any joint debts
are to be handled. This includes mortgages on a
jointly owned home and any joint credit
cards that you have. You also need to be
aware of how failure to pay those debts on time
will affect your credit rating – even if your
divorce decree states that you are not the party
responsible.
There are two kinds of credit card
accounts – individual and joint
– and each is seen differently in terms of
credit history. Don’t assume that just because
you have a credit card with your name on it the
account was a joint account. The account holder
of an individual account may designate ‘authorized
users’ and issue cards in their name, but
the account holder is still the responsible party
for the payment of the bill.
If you authorize a user on an individual
account, the account may show up on both your credit
report and theirs. If you have a joint account,
it will appear on both of your credit reports. If
you divorce, you are both responsible for any bills
on joint accounts – but you may also be responsible
for any bills on individual accounts held by your
ex-spouse if you live in a community property state.
Credit companies are obligated to
close or freeze a joint credit account at the request
of either holder on the account, but they may not
close the account without that request. To protect
yourself in case of divorce, financial advisors
recommend the following:
Freeze all joint credit accounts
immediately.
This will prevent the credit cards from being run
up further and hurting your credit further. Most
creditors will not close an account with an outstanding
balance, but will freeze it at your request.
Remove your ex-spouse as an
authorized user from any individual account that
you hold.
It’s important that only you will have the
authorization to charge items on your individual
accounts. This will help protect your accounts,
and will ensure that you have your own credit after
the divorce.
Ask credit card companies
to convert joint accounts to individual accounts
in the name of the person who will be responsible
for paying them.
The credit card company is not obligated to do this.
They may require that the balance be paid in full,
or that the individual apply for credit in his or
her own name, and then transfer the balance.
Allocate the debts for repayment
responsibility.
The best way to allocate debts is for each of you
to agree to be responsible for repayment in full
of specific accounts. Be aware that any agreement
between the two of you is not binding on a third
party – the credit card company. If your ex-spouse
agrees to pay an account and then defaults, it is
still legally your responsibility to the credit
card company to pay it. You ARE entitled by law
to sue your ex-spouse for that money – but
few ex-spouses do.
