Divorce won’t change credit card obligations

credit factsUrban Legend Number 12: I have just gotten divorced from my spouse. We had a credit card account that included both of our names. The account had a $1,000 balance. The divorce decree indicates my spouse was responsible for paying off the credit card. My spouse has stopped paying on the credit card. The credit card issuer is initiating collection actions against me. I am not responsible for paying off the credit card and my credit score will not be affected because of the divorce decree.

The Reality: False.
According to US Census data , the divorce rate for marriages in the United States has hovered around 50 percent for many years. Financial stress is commonly regarded as one of the “Top 10” reasons that people get divorced. Unfortunately, understanding what your credit card rights and obligations are during and after a divorce is something many of you will need to know…..

…….Your credit score and the credit score of your spouse will both go down by a large number of points because of the non-payment on the account and the collections actions.

Polly’s Pearls of Wisdom: The negative impact of divorce on your credit score will be directly related to your credit history, both before and during the divorce. Although this is a very emotional time, you should also focus on your long-term recovery, both financial and emotional. You should consider that, if you can afford to do so, paying off a credit card balance may save you money in the long run and it may benefit your financial well-being.

It is easy to be angry at your spouse for not paying a bill that a judge said they had to in the divorce decree, but if you pay off that bill, you can take back control of your finances and shorten the amount of time spent fighting with your spouse. Doing so will also help your mental and physical health by removing the stress of collections and other legal actions that will be taken against you for non-payment of a credit card account. Reducing the amount of time that you have negative items being reported on your credit report will shorten the time your credit score will need to recover.

As was discussed for Urban Legend 5, a single missed payment typically reduces a person’s credit score by 60-110 points (about 60-80 points if your credit score is in the 600s, and about 80-110 points if your credit score is in the 700s). A missed payment entry typically remains on a person’s credit report for seven years.

A collection action typically reduces a person’s credit score by 40-160 points (about 60-80 points if your credit score is in the 600s, and about 140-160 points if your credit score is in the 700s) and remains on a person’s credit report for seven years.

It is best to try and handle responsibility for credit card issues during the divorce proceedings. Divorce laws vary from state-to-state and you must consult with your divorce attorney to discuss such issues.

If an agreement can be reached during the divorce proceedings as to which spouse will be responsible for what portion of the credit card debt, then you can have your attorney contact the credit card issuer and request the joint account be canceled. Ask the credit card issuer to open new accounts for both you and your spouse individually, and to issue you a new credit card on your new individual account. The debt on these new accounts will not be shared, and you can move forward from that point.

If an agreement cannot be reached during the divorce proceedings, immediately upon receiving your divorce decree you should contact the credit card company in writing and request the joint account be canceled, and new individual accounts be set up for you and your former spouse. Include a copy of the divorce decree with your letter.

Obtain copies of all three of your credit reports, and continue to monitor your credit reports until all your joint accounts can be canceled. This will alert you to any problems that are occurring (e.g., late payments, missed payments, or collections actions).

Be aware that the new credit card accounts you and your spouse obtain may have different contract terms, new credit limits, and different interest rates. Because your financial situation has changed, you both may be required to reapply with the issuing bank. The credit cards for the joint account were issued based on combined incomes. The credit cards for the individual accounts will be issued for each spouse individually.

In many marriages (especially in those involving older couples), one spouse may not have worked for decades, and may have no job and no income after the divorce. It may not seem fair, but in such a situation, the non-working spouse may be issued a credit card with a very low limit or even be denied a credit card altogether. Ladies and gentlemen, as a rule of thumb, always, always,
always have a credit card in your own name.

The same thing may be true with mortgages and auto loans. The non-working spouse or the spouse with the smaller income simply may not make enough money to qualify for such loans, or to refinance such loans.

More information about your credit card rights after a divorce decree has been issued can be found the Federal Trade Commission’s website at:
(www.ftc.gov/bcp/edu/pubs/consumer/credit/cre08.shtm)or by calling (877) FTC-HELP.

More information on divorce topics including your financial obligations during and after a divorce can be found online at: (www.divorcesupport.com) or (www.divorce360.com). Many other websites can be easily found using a search engine query on this topic.

A divorce is a very emotional situation. Anyone who has gone through a divorce knows that it generates a large number of emotions, both positive and negative. Be aware of the associated negative emotional triggers when making purchases of any kind. Consider the following.

Plastic Reactions:

• Loss of a marriage, a job or a change of residence caused by divorce can trigger grief emotions. Ask yourself, “Am I grieving? How do I feel?” See Urban Legend 18 for a discussion on the stages of grief and where to get help with grief.
• How did you feel when you were dealing with closing your joint accounts?
• How would you feel if you had a new individual credit card account?
• How would you react if you were denied a new individual credit card account?

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The Arizona Daily Independent has received permission to reprint portions of a timely new book “The Plastic Effect” focused on the urban myths of credit cards and their usage written by Polly A. Bauer, CPCS and Stephen Lesavich, PhD, JD. Future issues of the ADI will feature “Polly’s Pearls” included in each Urban Legend Myth. “The Plastic Effect” is Copyright by Coconut Avenue, Inc. All rights reserved. No unauthorized reproduction or duplication is permitted without written permission of Coconut Avenue, Inc.