Facts for Consumers from the Federal Trade Commission

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. 
11/93