of the most often asked questions we receive is about credit and divorce.
This is becoming more frequent as more and more businesses use and accept
credit cards for payment of their invoices and they want to know who is
liable for payment.
and Martin recently divorced. Their divorce decree stated that Martin
would pay the balances on their three joint credit card accounts. Months
later, after Martin neglected to pay off these accounts, all three
creditors contacted Rachel for payment. She sent them a copy of her
divorce decree insisting she was not liable for the accounts.
creditors correctly responded that they were not parties to the
divorce decree and that Rachel was still legally responsible for paying
off the balances. Rachel later discovered that her credit report reflected
late payments and delinquency.
tough lesson for Rachel to learn but divorce neither absolves or forgives
debt. Something her attorney should have informed her of but often
are two types of credit accounts in consumer transactions, individual and
joint. You can permit authorized persons to use the account with either.
an individual account, the creditor considers only the applicants’
income, assets, and credit history. Whether married or single only the
applicant is responsible for paying off the debt. The account will appear
on that persons’ credit report, and may appear on the credit report of
any person the applicant authorizes to use the credit account.
if the individual resides in a community property state (Arizona,
California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or
Wisconsin), that person and their spouse may be responsible for all debts
incurred during the marriage and the individual debts of one
spouse may appear on the credit report of the other.
incurred prior to marriage is the sole responsibility of the person who
incurred the debt.
a joint account, the applicant’s income, assets, and credit history
along with any co-applicant is considered for a joint account and
regardless of who handles the bills; all account holders are responsible
for payment of the debt. A creditor who reports the payment history of a
joint account to a credit-reporting agency must report it in all account
holders’ names (if the account was opened after June 1, 1977).
account holders are responsible for the debt. This is true even if a
divorce decree assigns separate debt obligations to either spouse.
individual or joint account holder may authorize another person to
purchase on the account. If a spouse is named as the authorized user the
creditor who reports payment history to a credit reporting agency must
report the information in both the account holder and spouses’ name (if
the account was opened after June 1, 1977).
creditor may also report the payment information in the name of any
authorized user as well.
authorized users have permission to use the account, only the account
holder, and not the authorized users, is contractually liable for paying
any debts charged to the account, regardless of who charged them.
or Changing the Account
law, a creditor cannot close a joint account due to a change in marital
status, but can do so at the request of either spouse.
creditor, however, is under no obligation to change joint accounts to
individual accounts. The creditor can require either account holder to
reapply for credit on an individual basis and then, based on the new
credit application, extend or deny credit.
the case of a mortgage or home equity loan, a creditor is likely to
require refinancing to remove a spouse from the obligation.
wish you well!
information provided above is for educational purposes only and not
provided as legal advice. Legal advice should be obtained from a licensed
attorney in good standing with the Bar Association and preferably Board
Certified in either Creditor Rights or Bankruptcy.