Credit, when you are married…. 

Engaged, Married, Divorced, Separated or death of a Spouse: (Things you should know)

Managing your credit can be tricky, even when you’re the only person involved in your financial decisions. Add a new spouse to the mix, and you have to be extra careful to ensure your credit remains in good standing.

For many engaged couples, talking about finances takes a back seat to the excitement of wedding planning. But, before saying “I do,” you need to be aware of the credit issues that could arise with a new marriage.

First of all, both you and your spouse should put all your financial records – savings, salaries, investments, real estate, and especially credit – on the table. If one of you has a less-than-glowing credit history, it will affect the other as soon as you start applying for credit together and opening joint accounts. In addition, your new joint accounts will appear on both spouses’ credit reports in the future, so be sure to pay careful attention to your bills and pay them on time.

Once you’ve aired your credit laundry, you’ll need to decide whether or not to merge all of your financial accounts. Many couples do this because consolidated accounts often make for easier record keeping. Just remember, both of you are responsible for all debt incurred in any joint credit accounts. So, regardless of who’s incurring debt, a missed payment on a joint account will negatively affect both of your records. The same is true in community property states, where virtually any debt entered into during marriage is automatically considered joint. Consider also if you miss a payment on an individual account, that payment may very well impact your ability to open joint accounts because both credit histories will be considered.

The best way to keep your record clean starts with a solid understanding of the terms of your joint accounts. That means paying attention to interest rates, credit limits, annual or late payment fees and cash advance limits. If you decide to consolidate your accounts, you might want to keep at least one credit account in your own name as a safeguard in the event of an emergency. Keeping an individual account can also be a good thing in the event of divorce to reestablish an individual credit history.

Women, who take their husband’s surname after getting married, need to notify the Social Security Administration and their current creditors of this change. You do not need to notify the credit reporting agencies of a name change. They will automatically update the name on a credit report when creditors report it.

The key to successful credit management, as a couple, is understanding that your individual credit behavior affects both you and your partner. To ensure that you are able to quickly get credit at the best possible terms, be sure you both understand all the implications that accompany a joint account. In addition, consider how the payments stemming from a major credit purchase will affect your overall budget.

Divorce
With divorce and separation come new experiences and responsibilities. Suddenly words like “child support payments” and “100 percent liable for bills” enter the picture. If you ignore your increased financial obligations or fail to separate your accounts, it may be hard to open new accounts and obtain new loans in your name. But there are many moves you can make to protect and restore the good credit that took years to build.

Protect your good credit
Your divorce decree does not relieve you from joint debts you incurred while married. You are responsible for joint accounts, from credit cards and car loans to home mortgages. Even when a divorce judge orders your ex-spouse to pay a certain bill, you’re still legally responsible for making sure it is paid because you promised – both as a couple and as individuals – to do so.

Federal law can trump state or civil law in certain situations, particularly when there is a conflict between the two. However, your example touches on contract law and the obligations arising from agreements with third parties, like lenders, rather than a direct conflict between federal and state law.

If a civil divorce court judge orders your ex-husband to take over car payments as part of a divorce settlement, that does not alter your legal obligations to the lender if your name is still on the loan. The lender is not bound by the divorce decree because they were not a party to the divorce proceedings. Therefore, unless the loan is refinanced in your ex-husband’s name alone, you remain legally responsible for the loan payments.

This is why it’s important in divorce settlements to ensure that assets and debts are appropriately reassigned, and necessary steps like refinancing are completed to remove one party’s legal responsibility. If the ex-spouse fails to make the payments, the lender can still hold you responsible, and your credit could be negatively impacted.

To summarize:

  1. Divorce Decree: Determines how assets and liabilities are divided between the parties in the divorce, but does not affect third-party contracts.
  2. Loan Agreement: Your obligation to the lender remains unless the loan is refinanced or otherwise modified to remove your name.
  3. Federal vs. State Law: The distinction is not directly relevant here because this issue is about contract law, not a federal-state law conflict.

This scenario underscores the importance of understanding the limitations of divorce decrees concerning third-party agreements.

 

The credit grantor (a bank, credit card issuer, mortgage company or other credit-lending business) also has a legal right to report negative information to a credit reporting agency if your ex-spouse pays late on a joint account. If your ex-spouse doesn’t pay at all, you’ll probably have to pay – or the grantor can take legal action against you.

Close or separate joint accounts. If you can talk to your ex-spouse, you can save a lot of grief.  Analyze all your debts and decide who shoukld be responsible for each. Call your creditors and ask them how to transfer your joint accounts to the peson who is solely responsible for payments. However, you still might have legal responsibility to pay existing balances unless the creditor agrees to release you from the debt.

Take stock of your properties. You may have to refinance your home to get one name off the mortgage. Or you might need to sell your home and divide the proceeds.

Keep paying all bills. Until you can separate your accounts, neither of you can afford to miss a turn paying bills. During divorce negotiations, send in at least the minimum payment due on all joint bills. Miss even one payment and it stays on your credit profile for up to seven years, making it hard to obtain new credit in your own name. Beware of well-meaning friends and relatives who may tell you to ignore making payments or to run up debts. Always make all payments with at least the minimum due.

Establish credit independently
Start small and build up. Get a credit card that has a small credit limit, perhaps from a local department store or financial institution. Then always pay your bills on time so your credit history will be excellent. After six months, apply for another card and continue paying bills consistently. Don’t run your debt up beyond what you can afford to pay. It’s a winning strategy that’s easy to master.

Ask a family member or friend to cosign. Perhaps a relative or friend with an established credit history can cosign your loan or credit application – provided you repay that cosigned debt on time. Remember, any transaction also will show up on the cosigner’s credit profile. After a few months, try again to get credit on your own.

Consider applying for a secured credit card. You must open and maintain a savings account as security for your line of credit. Your credit line is a percentage of your deposit. Beware of the extra fees you may have to pay for secured credit.

Bankruptcy is a last resort.

Bankruptcy should be the last move to make if you get in over your head. It is not an easy way out. Filing for bankruptcy is no guarantee that it will be granted because a court judgment must be made. Even if all you do is file your bankruptcy papers with the court, it gets reported on your credit profile.

Not all debts are included in bankruptcy. Things like alimony, child support, student loans and taxes secured by liens still must be paid consistently.

Bankruptcy remains on your credit history up to 10 years. While a declaration of bankruptcy removes many debts, any reference to filing, dismissal or discharge still appears on your credit history for up to 10 years. During this time, you’ll find it more difficult if not impossible to get a new mortgage, personal loan or a credit card.

Consider mediation
Mediation can make things much fairer by helping you and your ex-spouse work out a reasonable and equitable divorce agreement. If you’d like help finding a mediator, contact the American Arbitration Association. To locate an attorney, check with your state or local Bar Association.

Death of a spouse
If you’ve lost a spouse, you’re already going through one of the most emotionally draining experiences possible. When a loved one dies, there are also numerous financial matters to deal with, including credit and debt issues. There are, however, some simple steps you can take now to help down the road.

Stabilizing your credit in the event of a death can be difficult, especially if your spouse held all of the credit in his or her name. Keep in mind that in community property states, credit accounts opened during marriage are automatically joint. That means you are still responsible for any debt that your deceased spouse incurred.

By law, a creditor cannot automatically close a joint account or change the terms because of the death of one spouse. Generally, the creditor will ask the survivor to file a new credit application in his or her own name. After reviewing the new information, the creditor will then decide to continue to extend credit or alter the credit limit. You might want to open a new credit account in your name. In doing so, keep in mind that you must use your name only when applying. Including your deceased spouse’s name will result in a joint account. Experian automatically updates its records with periodic reports from the Social Security Administration.  When the update is made, your spouse’s credit history will be flagged to show that he or she has passed away and their name will be removed from any pre-approved credit offer mailing lists