Category: Finance.
Divorce can be an emotional time for anyone, but when credit problems are also a part of the process, the stress can be overwhelming.
On a very general level, there are two kinds of credit accounts. At issue during some divorce proceedings are the types of credit accounts that are open, either jointly or separately, and who has to pay which ones. There are individual credit accounts and then there are joint credit accounts. Normally, when you fill out an application for credit, and this can be for any type of credit from auto loans to home loans, the application will ask if you want an individual account or a joint account. Knowing how each works can save you money and perhaps some hardships later on. When decide on an individual account only your income, and assets are, credit history taken into account.
It does not matter if you are married or single, you will be held responsible for the loan payments. By that same token, only you are held responsible for paying the loan back. Under this type of agreement, you may elect to add someone to the account as an authorized user, which means they can charge on the account, but that does not release you from sole responsibility for the account. These states are currently: Arizona, Idaho, California, Louisiana, New Mexico, Nevada, Texas, and Wisconsin, Washington. An exception to this is if you live in community property state. In these states both you and your spouse may be held responsible for any debts incurred during your marriage, and the individual debts of one spouse may show up on the credit report of the other and vice versa. You are both responsible for the debt.
With a joint account, assets, your income, and credit history along with your spouse s are both considered when lenders decide to give or deny a loan. The up side to a joint account is it often gives you and your spouse a better looking financial picture, especially if you have two incomes. This is true even if a divorce decree assigns separate debt obligations to each spouse. The down side to a joint account is that because two people applied together for the credit, each is responsible for the debt. Many consumers do not know it but former spouses who run up credit bills and do not pay those bills can harm their ex- partner s credit history on jointly- held accounts. During the proceedings, it is important that the bills be paid on time because to ignore them may hurt your future credit as well as your spouse s future credit.
If you or your spouse is considering divorce or separation, you should both pay special attention to the status of your credit accounts. It is very important to remember that as long as there is money owed on an account you and your spouse are responsible for paying it. This is the best way to avoid future problems should your spouse decide to use the account. When a divorce takes place, it usually best to close joint accounts or accounts in which your former spouse was an authorized user. You should also know that by law, a creditor cannot close a joint account because of a divorce, but can do so at the request of either spouse. The creditor can require you to reapply on an individual basis and then extend or deny you credit based on the new information that you give about yourself. A creditor is not required to change joint accounts to individual accounts.
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