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Debt, Credit Rating and Joint Finances

Managing Debt, Credit Rating and Joint Finances in Divorce

Debt management

Just because you are married or in a civil partnership, it does not mean that all debt automatically belongs to you. Who owns the debt will depend on whose name the credit agreement was made in.

If you have joint debt, i.e. it was taken out in both your names, then you are equally liable. This means that if one party is unable or unwilling to meet the financial demand of repayments, the other person could be pursued until the debt is cleared. It is therefore essential that these debts continue to be repaid until a financial settlement is reached. Where a loan or debt is in your partner’s name only, then as long as you are not financially linked to that debt, you are not responsible for it.

If possible, take the time to discuss the finances with your partner or spouse and come to an agreement about who pays what bills until a financial settlement can be reached. You may want to consider speaking to your creditors about your situation, especially if you are struggling to meet the financial commitments imposed on you.

The court may become involved in making financial agreements for you during a divorce. They will usually allocate any joint debt as well as assets, taking into consideration what the money was used for and whether an individual had debt that they brought into the marriage.

Credit cards

There is no such thing as a joint credit card. There will be one sole owner of the credit card account, and then you may have additional cards in another person’s name. If your spouse has an additional credit card on your account, then it is you that’s liable for the debt they build up. In the event of a relationship breakdown, you may want to remove any additional cards that your partner has from your account.

Joint bank accounts

A joint bank account belongs to each party equally. You can both access the money held in the account, make purchases against the account, and you are both liable for any overdraft that is taken out.

You may be concerned that one party could withdraw all the money that’s held in a joint account. In this situation, you could contact your bank and change the way the account is accessed. With both of you needing to agree to any withdrawals that are made.

Alternatively, you could close the account and open separate accounts individually. You may need your partner's co-operation to do this though, which may not be forthcoming in some circumstances.

To protect your own finances, you could opt to open an individual account and have any income that belongs to you paid into that account. You will need to ensure that any bills and financial commitments that are usually paid from the joint account are still being met.

If your partner does withdraw a large amount of money from the joint account without your knowledge, then this is usually remedied as part of the final financial agreement, with their share of the assets being reduced by the amount they have taken.

Credit rating

You may be financially linked to your partner or spouse. This would be the case if you had a joint bank account, loans or other credit together. Even after your divorce or separation, you may still be connected to your partner’s financial records.

When you apply for credit, the lender will not only be looking at your credit history but also your partner’s. Therefore, their behaviour could negatively impact your credit rating, making it more difficult for you to borrow money.

You will be able to find out if this applies to you by contacting your lender and then asking them to change their records so that you are no longer linked. They may also be able to put a notice of correction on your credit history showing that you are no longer connected to your partner or spouse.