New wife could help his credit, but she’s not obligated
Dear Liz: I am a divorced 49-year-old man who has a lot of debt. I recently (and shamefully) turned in the keys on my ridiculously upside-down home in Arizona. My credit scores have plummeted and all my credit cards have raised their rates to 28% and above.
I am remarried to a wonderful woman who is more fiscally responsible and wants to buy a home. I’d like a quick fix, but that seems unlikely. I’ve avoided commingling our assets and credit so far, but recently I asked my wife to cosign a personal loan to consolidate my debt. I’ve also requested to be an authorized user on some of her high-limit, low-balance credit cards.
I fear this may be a break point for our relationship. She has worked hard to be responsible and I — well, I have not. My strategy seems sound. What do you think?
Answer: Your plan could dramatically lower your interest costs, allowing you to repay your debt more quickly. It also could help rehabilitate your battered credit scores.
But the cosigned loan would put your new wife’s credit in your hands. If you missed a single payment, her hard-won credit scores could plunge overnight. If you failed to pay the debt, she would be responsible for it.
That’s a huge risk for her to take, so you shouldn’t hold it against her if she declines. Adding you as an authorized user of her cards involves much less risk, since she wouldn’t have to actually give you access to those cards, but she’s under no obligation to do that either.
If she turns you down, you might want to consider a visit with a legitimate credit counselor (one affiliated with the National Foundation for Credit Counseling) as well as a session with a bankruptcy attorney so you can be apprised of all your options regarding your debt.
Marriage didn’t trash son’s credit score
Dear Liz: The day before my son got married, he proudly had a long-term 800-plus FICO credit score. The day after he got married, his FICO score became 600. It seems his new wife had many outstanding major debts incurred before the marriage. They live in a non-community-property state. How can he rebuild his credit either with or without a divorce?
Answer: Unless your son filed for bankruptcy the day after his wedding, the scenario you describe is pretty much impossible.
Our credit reports don’t get merged or combined when we marry. And it’s highly unlikely that any of the debts his wife incurred before marriage would be added to his credit reports unless he agreed to be added as a joint account holder or an authorized user.
As a practical matter, of course, he’ll want to help his new wife address these debts, since they’ll affect the couple’s life together.
But he’s not legally responsible for them. Because she incurred these bills before the wedding, they’re her separate responsibility in every state — community-property states included.
An appointment with a marriage counselor might be in order if she actively concealed these debts from him. But they needn’t contact divorce attorneys to fix this problem.
They should probably make two more appointments, however: one with a legitimate credit counselor affiliated with the National Foundation for Consumer Credit (www.nfcc.org) and another with an experienced bankruptcy attorney. The counselor and the attorney together will provide a complete picture of her options.
By the way, just as there’s no such thing as a combined credit report, there’s also no such thing as a “long-term” credit score. Each score is a snapshot of your credit situation and changes as the underlying information in your credit reports changes — which is basically all the time.
Spouse’s debt may be yours–or it may not be
Dear Liz: My spouse has extremely high credit card debt. All cards are in her name only. Where do I stand legally if she dies or we divorce? What can a person do about such uncontrollable abuse of credit cards? The interest alone is horrific, but she pays it.
Answer: If you live in a community property state and don’t have a prenuptial agreement, debts incurred during marriage are typically considered owed by both parties (even if there’s only one name on the credit card). Community property states include California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
In other states, debts incurred by one spouse are usually that spouse’s responsibility alone, unless the money was used to buy family necessities such as food or shelter. If you divorce, she probably would be responsible for these separate debts. If she dies, creditors could go after her separate property and may be able to go after her half of any jointly held property.
The rules vary enough by state that you’d be smart to consult an attorney about your potential liability.
Wherever you live, though, this debt is affecting your union and your future together. The money she’s paying in interest isn’t available for other purposes, such as saving for retirement or your children’s educations, plus it’s clearly causing tension between you. If you want your marriage to succeed, you should invest in sessions with a marriage counselor and a fee-only financial planner.
Marriage doesn’t combine credit scores
Dear Liz: I have reunited with the love of my life. There is one problem: She has a bankruptcy on her record. If I have very strong credit scores and we marry, how will her credit affect my chances of buying a house?
Answer: You each will retain your individual credit reports when you marry. They won’t be combined.
If you plan to use her income to help qualify for a home purchase, though, her credit scores will be used to determine the rate and terms you get. If the bankruptcy is recent or if she hasn’t taken steps to rehabilitate her credit, that means you could pay more interest or have more trouble finding a loan.
If you don’t need her income to qualify, on the other hand, her credit troubles don’t need to affect your loan.
Separate your finances before divorce is final
Dear Liz: My wife and I each had excellent credit when we married 10 years ago. We are now divorcing (amicably). Since we married, we have put everything in her name: two houses in succession, three cars, all car insurance and utilities. We refinanced our house in February with her name first.
I recently opened checking and savings accounts in my name only and had my paycheck deposited there instead of our joint account.
What steps should I take before a divorce decree to be sure I retain a great credit score?
Answer: To protect their credit, divorcing couples should make sure to close all joint credit accounts and transfer any balances to the partner who will be responsible for paying the obligation.
The same is true for mortgages and other loans that are in both names. Whenever possible, these debts should be refinanced in the responsible party’s name only.
All this should be done before the divorce is final. Otherwise, your ex can trash your credit — deliberately or not.
If your name is still on the mortgage, car loans or credit cards, your scores could plummet if she misses a payment. You would have little recourse because your creditors aren’t bound by your divorce agreement, even if it plainly requires her to stay up to date on these obligations.
Closing accounts and opening new ones can inflict temporary dings on your credit, but these pale in comparison to the damage done by a single skipped payment. If you want to keep that amicable vibe and your excellent scores, separate your credit accounts now.
