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Credit and Divorce
When couples divorce, a number of factors can impact both parties credit.
The type of credit accounts and bank accounts is very important when
settling a divorce. Regardless of the status of the divorce, outstanding
balances must be managed and debt repayments are still essential. Any
outstanding balances on both joint and individual accounts must be repaid
as agreed to under the borrowing terms. If payments on a joint account are
not made as arranged, negative information can be applied on the credit
history of both parties.
We can help you maintain or regain your good credit status after and throughout divorce proceedings.
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Joint accounts can be converted into individual accounts during divorce. A
joint account cannot be closed simply due to changes in marital status,
but only on the request of one of the individuals. The individuals will
not necessarily be eligible for the same credit status they enjoyed while
being married, and a creditor may require a new application for credit
based on an individual.
Mortgages and home equity loans usually require refinancing in order to
remove one party from the agreement.
Credit accounts fall into two categories; individual and joint.
Either type of credit account can include an 'authorized user' who is
permitted to use the account. Authorized users of an account can have the
credit history of that account reflected on their credit history. However,
credit users are not liable for payment of that account. Only the person(s)
whose name(s) are on the account are deemed liable for repayment of the
account.
Individual Accounts
The ability to open an individual account rests on that person's credit
history, income, assets, etc. and only that individual is responsible for
payment of the account. This account can include 'authorized users' who
are not liable for outstanding balances. If the authorized user is a
spouse, any credit information reported will be reported on the spouse's
report as well. In many states however, debts incurred on individual
accounts over the duration of a marriage can become both spouse's
responsibility and a credit report on an individual account can be
reflected on a spouse's credit report.
Joint Accounts
Both spouse's financial information, including assets, credit history and
income are considered when opening joint accounts. Both spouse's are
responsible for debt repayment and the credit reports of each spouse will
reflect the joint account. Joint accounts are often useful for those
individuals who are unable to secure credit based on their own financial
history or situation. Having said that, after divorce, regardless of the
divorce agreement and individual obligations, both parties remain liable
for repayment of the debt. Negative information about joint accounts can
be included on both spouse's credit reports.
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DivorceMag is a website dedicated to the topic of divorce
and includes a section on money matters, including
credit and divorce.
The Legal Information Institute offers in depth information about
divorce.
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