Let me begin with an example. The names are fictitious. The situation, however, is real. I see it in my law practice almost everyday.
Mary and Bill recently divorced. The divorce decree states that Bill must pay three joint credit cards. Bill failed to pay off these accounts. Months after the divorce is final, all three creditors contact Mary for payment. She refers them to the divorce decree and insists that she isn't responsible for the debts. The creditor, however, correctly tell Mary that she is still legally responsible for the account because they are not a party to the divorce decree.
If you're considering a divorce, you should look closely at issues involving your credit. You should especially devote some time to understanding the different types of credit accounts you may have opened during your marriage. There are potential benefits and pitfalls to each one of them.
During your marriage you may have opened either individual or joint credit accounts. Typically, when you apply for credit - whether a credit card or a mortgage - you're asked to select either an individual or a joint account.
Individual Account vs. Joint Account
When you open an individual account, only your income, assets, and credit history are reviewed by the credit grantor. And, you are the only person responsible for paying the debt, even if you're married when you apply for the individual account.
You should understand, however, that in community property states like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, both you and your spouse may be responsible for all debts incurred during your marriage.
When you open a joint account, the credit grantor looks at your income, financial assets, and credit history and that of your spouse. Basically, you're both responsible to pay the bill for a joint account.
Advantages and Disadvantages of Each Type of Account
The advantage of an individual account is that no one else is on the account who can negatively affect your credit score. You alone are reponsible for the account.
But, the disadvantage is that an individual account can be hard to get. It's especially difficult to get an individual account if you work part-time, have a low-paying job or are not employed outside the home.
The advantage of a joint account is that it's easier to get one. Applying for a joint account allows you to combine your resources with those of your spouse and present a stronger case of financial strength to the creditor.
The disadvantgage of a joint account is that both you and your spouse remain liable on the account even if you divorce.
So What's Exactly Does Happen If You Divorce
If you're considering divorce, pay special attention your joint credit accounts. As long as there is an outstanding balance on a joint credit account, both you and your spouse are responsible for that balance, even if the court grants a divorce and orders your ex-spouse to pay that particular credit account.
You have to realize that your divorce decree does not over-ride the joint contract you and your spouse have with the credit grantor. Your creditor is not a party to that decree so your relationship to the creditor is not affected by the decree. The bottom line is that you're still responsible for the debt if your ex-spouse fails to pay it as ordered in the divorce decree.
You can avoid this problem by closing joint accounts before you file for divorce. The creditor cannot legally close a joint account just because you have divorced. But, the creditor can close it at the request of either spouse.
Alternatively, you can ask the creditor to convert the joint account to an individual account. But, the creditor is under no obligation to make such a conversion. And, the creditor can require you to reapply on an individual basis and then, on the basis of the new application, either grant or deny credit.
If you have a mortgage or home equity loan you want to convert from joint to individual, the lender will probably require you to refinance to remove your spouse from the obligation.
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Harvey L. Cox is a licensed attorney, certified mediator and founder of
NoLegalesePublishing.com, a premier self-help legal publishing web site. If you want plain english explanations of the law and your legal rights, visit
NoLegalesePublishing.com
