Credit

Should You Combine Credit Accounts with Your Spouse?

Should You Combine Credit Accounts with Your Spouse?

Valentines Day 2013 is just three days away and if the statistics are similar to those from 2012, about 4 million of you will get engaged on that day.

Further, according to data from a 2012 American Express survey, 14 million people said they planned on getting engaged in 2012.

Long story short, a lot of people are about to walk down the aisle.

And while I’ll acknowledge that your credit is probably not even on your radar as it pertains to wedding plans, there are some things you should keep in mind.

There’s no need to merge liabilities…ever

There is no rule, law or requirement that you must merge liabilities with your soon-to-be spouse. That means having your name added to credit cards, mortgages, or auto loans is unnecessary and has no upside. However, there is significant downside to doing so.

The minute you have your name added to any sort of credit obligation or utility, you immediately become liable for payment. You also become subject to any collection activities, should the debt become delinquent.

This means your credit report will become polluted with late payments, collections, and possibly judgments if the creditor takes legal action to compel payment.

Having your name added to a liability doesn’t mean you’ll get a better interest rate and it doesn’t equate to better terms. What it does mean is there are now twice as many people from whom to collect a debt. Creditors are thrilled when they’ve got more than one person to pursue for payment.

This also applies to newly opened credit accounts after you’ve become a couple. Credit card accounts do not require two applicants, auto loans do not require two applicants, and mortgage loans do not require two applicants.

The only benefit of joint applications is if you need two incomes to qualify for the loan amount. And if you need two incomes to qualify for an auto loan, then you’re simply buying too much car.

The only exception to this would be the need for two incomes to qualify for a mortgage loan and even then, with a still shaky employment market, I’d suggest erring on the safe side and buying a house that is fully affordable with one income.

It’s easy to divorce your spouse but impossible to divorce your creditors

There’s a good reason to maintain credit independence even after you’ve tied the knot. That good reason has to do with trying to untie that same knot if you find yourself going through the process of divorce, which about half of those reading this will do.

If you’ve got joint loans and joint credit cards, your divorce will do nothing, absolutely nothing, to separate you from your ex-spouse in the creditor’s eyes. That’s right, just because you’ve agreed to split up doesn’t mean your creditors will allow you to split up.

I already know what some of you are thinking because I’ve heard it going on 22 years which is, “My divorce decree assigns responsibility for payment of my (enter loan or credit card here) to my ex-spouse.”

Divorce decrees do not supersede or modify in any way the agreement you’ve signed with your creditors. And, because your creditors are not a party to your divorce agreement, they are not bound by its language.

Don’t be fooled by the divorce settlement or even what the judge says. If your name is on a promissory note or a credit card holder’s agreement, you’re still liable for payment.

If your spouse is supposed to be making payments and he or she does not, both of your sets of credit reports will become polluted with late payments.

It’s not impossible to split joint accounts, but it’s close

There are three types of accounts that are primarily used by almost all couples: auto loans, credit cards, and mortgages.

Credit cards will include your traditional general use cards like Visa, MasterCard, Discover, and American Express. They will also include gasoline credit cards and retail store credit cards.

You will not be able to convince your credit card issuer to remove your name from a joint account. However, you can always pay off the account, close it, and re-open a new one in just your name. But, someone has to come up with the cash to pay it off.

You will not be able to convince your auto lender or your mortgage lender to remove your name from a joint loan, either.

However, you can always sell the house and exhaust the debt, or you can refinance the home loan into one of the spouses’ names — but you’ll have to qualify financially do to so.

Finally, to get out from underneath a joint auto loan, you’ll have to pay off the car, sell it and pay off any deficiency, or refinance the loan into one of the spouses’ names.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  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. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.