During your marriage, you most likely share finances, financial accounts, and credit cards with your spouse. While this does not pose a problem while you are married, it can turn into financial disaster for one spouse after divorce or legal separation. If your ex-spouse or partner has bad credit on a card that is in both your names, the bad credit can affect your credit score as well. Luckily, there are asset protection strategies and steps you can take to protect yourself in this situation.
Consider Keeping Credit Reports Separate
The best way to prevent a lowered credit score after divorce is not to merge your accounts in the first place. Many couples assume that marriage automatically results in a merged credit report. If you keep your separate accounts tied to each social security number, however, the credit reports will not reflect your marriage. Your spouse may have entered the relationship with poor credit, and you can make the choice to keep accounts separate to preserve your good credit score. Lenders will look at your credit history to decide whether to accept your application, set your credit limit, and assign interest rates.
In some situations, keeping your credit separate is not a viable option. If, for example, you want to qualify for a mortgage loan, you may need both incomes combined for the bank to accept your application. There are also risk factors related to keeping credit separate from your spouse’s credit. If you and your spouse take out a joint loan, you both must repay the debt. However, in the court’s opinion, the people who sign the loan document are responsible. This means that if your spouse takes off without repaying the loan, you will be responsible for paying the whole debt, even though you both agreed to joint repayment. If you have any questions or are in need of legal counsel regarding your credit score after a divorce, contact a Boyd Law Orange County divorce lawyer for help.
How Should You Designate Your Spouse?
If you still want to combine your credit, consider the pros and cons of “authorized user” versus “joint account holder.” An authorized user can use your credit account but is not be responsible for any debts incurred. In this situation, you could be stuck with debt you assumed you would pay off jointly.
Making your spouse a joint account holder makes him or her responsible for paying debts jointly accrued as well as able to use credit. It is much easier to remove an authorized user than a joint account holder, but it may not be the right choice if you are signing expensive loans and want equal responsibility. Authorized users may not face adverse effects on their credit scores, while you will.
When you designate your spouse as a joint account holder, your credit histories will combine into one score. These situations often lead to one spouse suffering ruined credit due to another spouse’s poor choices. If there is negative history already on your spouse’s account, this history will bring your own credit score down upon combining accounts. Generally, you should keep your credit card balances at less than 50% of your total available credit for the best FICO scores.
Work With an Orange County Divorce Lawyer
If you need any advice about how to designate your spouse, count on our Orange County family law attorneys at Boyd Law for help. We can navigate any complex financial or spousal situation using our years of family law education and experience. If you are in deep financial trouble because of your spouse’s spending habits or bad credit, we can help you get back in good financial standing. Contact us today to request a free consultation with one of our Orange County legal team members to find out more about the options you have for recovering or protecting your credit score.