Is Your Credit Damaged by Joint Debt After Divorce?
Are you afraid that your joint debt will damage your credit after divorce? The financial side of divorce is not just about separating and splitting assets. It is also about being responsible for your debt.
When you file for a divorce, you may have questions about your and your spouse’s assets and debts. Joint debt is important because they play a major role in your assets.
According to the divorce decree, the court splits your debts and assets and will specify the person responsible for clearing the debts.
This post covers the credit damage caused by joint debt after divorce.
Will Joint Account Remain on Your Credit Report?
Joint debts occur without our knowledge. For example, if you apply for a student loan with no proper credit history, then you must co-sign that loan with someone who has a credit history. When you get married, you and your spouse may sign up for a joint credit card to build your credit history.
When you open a joint account, it is part of the credit report made by the credit bureaus by the creditors. When a couple misses joint account payments or has any unpaid debts in that account, then it affects both credit scores.
Joint accounts will stay on your credit reports until that joint account closes. Check your account balances from your credit report will not show any impact on your credit scores.
The creditors must know about your divorce because both of you are responsible for the joint debt, but they will not accept the divorce decree as proof of excusing you from the debt.
For example, if the divorce decree states that your spouse is responsible for the debt and your spouse is not paying the debt properly, then it will affect your credit score.
You must remove your spouse’s name from that joint account, and your debts are handed over to either you or your spouse, as creditors expect both of you to return the entire amount.
4 Ways that joint credit accounts could damage your score
The following are some ways that joint credit accounts will damage your score.
1. No proper coordination
Without proper coordination, you cannot handle the joint credit account. You will get confused easily about who is paying the debts. You will become careless unless the spouse did not pay the debt amount.
You risk managing overdraft fees and late payments without proper coordination, which reflects on your credit report.
2. Adding an Authorized User
Some financial organizations will not accept joint accounts. Instead, they provide the feature to add authorized users to accounts. The authorized user can make changes to the account but will not make any payments.
After divorce, the debt defaults to the main user and not to the authorized user. In this case, the couple will prefer joint accounts rather than adding an authorized user.
If either spouse spends on the card and another has to repay the debt, then it leads to issues at the time of divorce.
3. Divorce Debt
If your spouse did not pay the divorce debt to the court, then you must protect your credit score. The creditors are not aware of this issue and they will immediately notify you of the payment process.
Since it is a joint debt and the court decree is irrelevant to the creditors, you are responsible for the payments.
When you start maintaining your records for payments, then you can pass them to the creditors for reimbursement.
The joint account may lead to overdraft fees. When you have any missed payments or late payments, you will be charged overdraft fees along with the initial amount. If you overdraw your credit account frequently, then the bank will report this activity to the three major credit bureaus.
This will show an impact on your credit scores. After your divorce, this will be mentioned on your credit report.
You must take the necessary steps in your credit so that it is not affected in your divorce process. By taking some steps, you may prevent upcoming financial problems.
Some financial habits that will help improve your score include clearing your personal debts and having a disposable income. When you take out a joint loan with your spouse, like a home loan or an auto loan, your credit score is impacted at the time of divorce.
It is better to maintain separate accounts after marriage so your credit scores will not be affected and you can handle your debts separately. Do you want to know more about your credit report? Contact us to clear your doubts about your credit score.
Frequently Asked Questions
Is it better to have joint or separate accounts?
Most couples prefer to use joint accounts so that they can access both of their accounts for money. In case of any medical emergency, the joint account is more helpful.
Can a couple get a joint credit card?
Many creditors will not allow joint credit cards for couples. A couple may use the authorized user option to access their credit card.
What happens to a joint account when one dies?
It depends upon the state law. If the account has the term “right of survivorship” all the funds will move to the supporting owner.
Does a joint account affect the mortgage?
When you and your spouse have a good credit score, then getting a mortgage will be quite simple from a financial standpoint. If any one of the spouses has a poor credit score, then your credit score might be lower.
Why you shouldn’t have a joint bank account?
When a couple does not have proper understanding or coordination when they use the joint account, it creates financial problems. To avoid these problems, it is better to use separate bank accounts to avoid any issues.