Credit

Get Married, But Keep Your Credit Separate

(iStockphoto)

Let’s just get this out of the way up front.  Half of the married people reading this will get or have already gotten divorced.

Those are the numbers reported by the Centers For Disease Control in Atlanta, as well as a variety of other sources that track such statistics.  So while practically all of us make some sort of statement about our marriage lasting “till death do us part”, the reality is that it won’t for half of us.

So what does this mean for you, credit-wise?  It means there’s a 50% chance that you may have to go through the process of separating yourself from your ex-spouse’s credit.  And while it’s really easy to co-mingle debt, it’s next to impossible to de-mingle it.

Why is it so hard?  The simple answer is that the creditor does not recognize the court’s assignment of debt responsibility.

So when you’re standing there in court or in the lawyer’s office agreeing on the terms of the divorce, there’s one very important party missing: your lenders.  Since your lenders are not a party to the divorce agreement, they are not bound by its terms.  That means just because you and your soon-to-be ex-spouse agree that one of you will pay the Visa while the other pays the MasterCard, it means nothing to the lender and is as worthless in their eyes as the paper it’s printed on.

This is the primary reason you should attempt to maintain credit independence while you’re married.  It has nothing to do with machismo.  It has nothing to do with whether or not you love the other person.  It has nothing to do with trust.  And it has nothing to do with whether or not you think the marriage will last.  The stats don’t lie.  This is about being practical.

There are clearly exceptions to this rule.  If you need two incomes to qualify for a home loan then both of you will have to sign the promissory note and be legally obligated to pay back the debt.  If you need two incomes to qualify for a car loan then both of you will have to sign the auto loan paperwork as well.  But, I would argue that if you need two incomes to qualify for an auto loan then you’re buying way too much car.

Additionally, there are states where you will both be liable for credit card debt even if only one of you applied for the card.  These are called “Community Property” states.  There are only ten of them: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Washington, Wisconsin and Texas.  The argument there is that since you both likely benefited from the debt you both are liable for the debt.  Sorry, you’re out of luck either way.

There is no real benefit for jointly applying for credit cards anyway.  You can easily add your spouse as an “authorized user” on your existing cards (and vice versa) if you really want the two of you to have access to the same cards.  Doing this allows both of you to have a card, you can both use the card freely, and you won’t have liability unless you live in one of those ten states.  Jointly applying doesn’t do you any good, but it does do the credit card issuer a lot of good.  Why have one liable party when you can have two?

If you have disproportionate balances on your individual credit cards then that can be addressed while dividing assets.  If you owe $10,000 on an individual card that benefitted both spouses, then $5,000 has to be credited by the other spouse.  That’s 1000 times easier than arguing with your ex to make the payments on the card after it’s too late.

The downside to assigning payment responsibility to joint cards after the divorce is huge, and all too common.  If Jack is supposed to make the payment but doesn’t, then both Jack’s and Jill’s credit will suffer.  And if Jack defaults, then the collection calls and efforts will persist against both Jack and Jill.  And simply arguing “I don’t owe Jack’s debt” won’t work.

Think about it.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit history” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.