Chapter 10
A marriage is more than a blending of life-styles, furnishings and families. It’s a blending of credit scores. Sometimes this combination is for the better; sometime it’s for the worse.
Your spouse has considerable ability to mess up your credit score with his or her actions or debt, even if it occured years ago. This is a connection that is unlike any other. Other family members—parents, children, siblings—aren’t automatically connected to your credit. But your spouse is.
It’s rare for married people to have very different credit reports or credit scores. Even though a husband and wife almost always have a slightly different score, they usually end up within 50 points of each other after several years of marriage.
But even your extended family can mess with your credit, if you aren’t careful. In this chapter, we’ll discuss how to be careful.
Some states in the United States have community property laws. In these states, each spouse is liable for the other’s debts, period. The only major exception is the purchase of real estate; both spouses’ signatures are required on real estate loans and transactions. On all other credit accounts, in a community property state, you can be held liable for debt you never even knew existed.
Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
If you don’t live in a community property state, you’re less at risk for your spouse’s debts. It all comes down to what sort of accounts your spouse has: joint or individual.
When you apply for credit, whether a mortgage or a credit card, you must select whether it will be a joint or an individual account. If your spouse has opened an individual account, his or her credit alone was considered by the creditor, and your spouse alone is responsible for making good on the account.
If you open a joint account, both of your credit histories are considered, and both of you are liable.
Sometimes, one spouse will open an individual account and name the other spouse-or a child or parent or another party-as an authorized user. This can be good way to help a child get started as a credit user. But it can also be a dangerous deal.
Like many people who start small businesses, Amy Lee had financed her start-up with her personal credit cards. When cash flow got tight, she simply accepted another of the pre-approved offers that filled her mailbox on an almost daily basis.
By the time she was able to sell her company to a local competitor, Amy found herself with $40,000 in credit card debt remaining.
She was planning to be married in about a month. The invitations had been sent, and everything was progressing according to schedule.
But Amy’s fiance was not pleased about inheriting what he perceived as a lot of debt. The couple lived in a community property state, so he insisted that she declare bankruptcy before their wedding day.
Was this a wise move? The bankruptcy definitely affected Amy’s credit rating in a dramatic way. And it would stay on her credit report for 10 years. But her husband’s credit was so good that the couple was able to purchase two new vehicles based on his credit score alone.
After about four years of rebuilding her credit, Amy’s scores also had risen enough for the couple to qualify together for a mortgage at a very good interest rate, and they were able to buy their first home.
Family therapists agree that a successful marriage is based on honest communication. On the other hand, most divorce attorneys will tell you that spouses go to incredible lengths to deceive one another.
Divorce is a major cause of credit related financial problems in the U.S.
Dorothy Allen never saw her breakup coming. By the time her husband left her to live with a younger woman, he'd racked up $50,000 in credit card debt-much of it spent wining, dining and traveling with the other woman.
It’s fairly common for the judge to divide up the debt during a divorce, or assign a particular debt to one spouse or the other. If you’re the spouse who did not receive this lovely parting gift, you may think you’re off the hook for the bill.
But you may not be. If this was a joint account—or if you live in a community property state—you may be liable for the debt, no matter what the judge said.
“Your divorce agreement does not change your obligations to your creditors,” according to Capital One, a major credit card provider, “and you will be held accountable should your spouse fail to make a payment on a bill that he/she agreed to pay in your name.”
Unless you and your ex speak honestly about these financial matters, you may never know there’s an issue until creditors come after you because your former spouse is late with the payments.
While your creditors don’t care who was assigned a debt in a divorce, the courts certainly do. And you can take your former spouse back to court for not paying a debt that was assigned to him or her.
That’s what Faith Geyer did when her ex-husband, Dennis Geyer, failed to pay—as directed—on their joint Chase Bank credit card account.
At the time of the divorce, Faith and Dennis had two credit card accounts with Chase. Dennis had opened an individual account in May 2001; and the couple had opened a joint account several years earlier. At the time of the divorce, Faith had removed Dennis’ name from the joint account. But the court assigned the debt to Dennis.
He didn’t pay, which is why the former couple wound up back in court. Dennis insisted that he shouldn’t have to pay for debt he did not create.
But the court was clear on this matter:
The trial court is provided with broad discretion in deciding what is equitable upon the facts and circumstances of each case.
While Dennis did not have to pay for any debt Faith amassed after the divorce, he was ordered to pay the $1,227.75 that had been the outstanding balance at the time of the decision.
The best way to avoid ugly surprises, like overdue debt, is to separate your credit when you divorce-or, better yet, as soon as you separate.
If you see divorce clouds on the horizon, or if you have just separated from your spouse, you'll want to establish credit in your own name-especially if that spouse has money problems.
In fact, it's a good idea to establish your own credit, even if your marriage is strong. In some cases, the unexpected death of a good spouse can cause just as much havoc as a divorce from a bad one.
Open your own bank account. This will be an account that your spouse does not have access to.
Open your own individual credit card accounts.
Get a copy of each of your credit reports, so you know where you stand individually, and so you know how much of your credit history overlaps with your spouse's.
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