Credit and Divorce -- April 1994

Produced in cooperation with the American Bar Association, Public 

Education Division



Mary and Bill were recently divorced. Their court-approved 

divorce decree stated that Bill would pay the balances on their 

three joint credit card accounts.  Some 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 stated, correctly, that they were not parties to 

the divorce 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 own credit report.

If you have recently been through a divorce or are contemplating 

one you may want to look closely at issues involving credit. As 

the above example illustrates, you may discover unanticipated 

problems.


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.  

With either type, you can permit authorized users to use the 

account.  When you apply for credit whether a charge card or a 

mortgage loan you will be asked to select one kind.  



Applying for an Individual or Joint Account  


INDIVIDUAL ACCOUNT:  When you apply for an individual account, 

only your own income, assets, and credit history are considered 

by the creditor.  Whether married or single, you alone are 

responsible for paying off the debt on this account.  The account 

will appear on your credit report (and may appear on the credit 

report of any "authorized" user as discussed below).


Please note that this may not be the case if you live in a 

community property state.  In some community property states, 

both spouses 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 spouse.  You may want to check 

your state laws if you live in one of the following states: 

Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, 

Washington, and Wisconsin.


Advantages/Disadvantages:  For spouses who do not work for pay 

outside the home, work part-time, or work in lower-paying jobs, 

it may be difficult to demonstrate a strong financial picture 

without the income of the other spouse.  But, if you are able to 

open an account in your own name, nobody else can adversely 

affect your credit record.  


JOINT ACCOUNT:  The income, financial assets, and credit history 

of both spouses are taken into consideration for a joint account. 


No matter who actually handles the household bills, both spouses 

are responsible for seeing that all 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:  A joint application combining the 

financial resources of two people may present a stronger case to 

a creditor for granting a loan or credit card.  But because two 

people applied together for the credit, each spouse is legally 

responsible to the creditor for the entire debt accumulated.  

This is true for a joint account even if a divorce decree assigns 

separate debt obligations to each spouse.  A former spouse can 

adversely affect another spouse's credit history on a 

jointly-held account, for example, by running up bills and not 

paying them.  



Allowing "Users" on Your Account


If you open an individual or joint account, you may authorize 

another person, often a relative, to use that account.  You apply 

for credit based on your own financial information and are fully 

responsible for paying any debt.  If you authorize your spouse to 

"use" your individual account, a creditor who reports the credit 

history to a credit bureau must report it in the name of your 

spouse as well as in your name (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:  These accounts are often opened for 

convenience.  They are helpful to people who might not qualify 

for credit on their own, such as students or homemakers.  While 

these persons may use the account, they are not contractually 

liable for paying the debt.  If you are permitting others to use 

your credit card, know that you alone are responsible for paying 

the bills.  



What To Do in the Event of Divorce


If you are contemplating divorce or separation, be sure to pay 

attention to the status of your credit accounts.  If you maintain 

joint accounts during that time, it is important to make regular 

payments so your credit record won't suffer.  As long as there is 

an outstanding balance on any joint account, both you and your 

spouse are liable for it.


You also may want to ask creditors to close any joint accounts or 

accounts in which your former spouse was an authorized user.  Or, 

preferably, ask the creditor to convert these accounts to 

individual ones or to the name of the spouse handling that debt.

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 agree to change 

joint accounts to individual ones.  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


If you have additional questions about credit, send for copies of 

the FTC's free brochures Women and Credit Histories, Fair Credit 

Reporting, or Best Sellers, which lists a variety of publications 

on credit and other consumer topics.  Contact:  Public Reference, 

Federal Trade Commission, Washington, DC 20580; (202) 326-2222.