Learning to budget after a divorce can be especially difficult if you and your soon to be ex-spouse have acquired debt. The options you have for deciding who will pay for what depends on the type of debt acquired during your marriage. In this article, we'll look at how individual and joint accounts are treated during divorce.
Individual accounts
An individual account is where the creditor considers your individual income and credit history, and issues credit in your name only. Whether it's a credit card or auto loan, you are responsible for paying the debt if it's in your name. If you're not sure if your debt is individual or joint, review your credit report. On it, your report will indicate if your debt is yours alone or shared jointly with your spouse. Note: You can be an authorized user on your spouse's account without being the individual account holder.
If you live in a community property state, you both may be responsible for debts incurred on individual accounts during your marriage. In addition, you may find your spouse's individual debts listed on your credit report, or vice versa. Nine states plus Puerto Rico and Guam have community property laws that determine how debt and property are divided in a divorce. These states are Arizona, California, Idaho, Nevada, New Mexico, Texas, Washington and Wisconsin.
Joint accounts
A joint account is where the creditor considers both spouses' income, assets, and credit history when extending credit. In this case, both you and your spouse are responsible for paying the debt. As such, you will find this debt listed on both credit reports.
Learning to budget with jointly held debt after divorce requires some thought. Review your finances to determine if you are financially capable of taking on debt with a single income. For example, in your divorce decree, you can state who will be responsible for certain joint accounts. So if you have four jointly held accounts, you might consider having your ex take responsibility for half. Note: Any late payments can appear on your credit report and even hurt your credit if your former spouse fails to pay creditors on time. Moreover, if he/she refuses to pay, the creditor can hold you legally responsible for paying off those accounts.
Closing joint credit card accounts
A credit card company won't automatically close a joint account due to divorce. If you want to close this type of account, you or your former spouse must make the request - typically in writing. Ask the creditor to provide you with a payoff amount and see if you can come to some agreement as to settling the bill. If either you or your ex can't immediately pay off the balance, then request to have the card placed on an inactive status and closed when the balanced is paid in full. This will at least prevent any further charges on the account.
If you don't want to close the account, your next option would be to have the joint account changed to an individual account and put in your name. This, however, is up to the creditor. The credit card company may require that you reapply for the credit card based on your individual credit history and income, before approving/denying your application. Be sure to consult your family law attorney before changing any account registrations.
For more information on learning to budget after divorce, including how to handle the restructuring of bank and retirement accounts, visit the Protective Learning Center.
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