Sometimes, happily ever after isn’t as clear-cut as we’d like. Marriage ends, either through divorce or death, and after the grieving process (and sometimes before), there come the more practical realities: the financial repercussions. After that, there exists the potential for a new marriage. Whether you’re widowed or divorced, there’s good chance another walk down the aisle is in your future. Credit and the end of a marriage is complicated at best and devastating at its worst.
Your Credit And Legalities After End Of A Marriage
It’s crucial to update not only your banking and financial information but your legal documents as well. Any kind of trust accounts you might have, your insurance policies, credit card accounts, mortgages – it all plays a role and if you miss one detail in your efforts, it can taint your future. What makes this part of starting over so complicated is the differences in state laws and the way our credit accounts are set up.
For instance, there’s a difference in having a joint account and an account with just your name but with an authorized user. In most states, a credit card company or bank will pursue the owner of the account, but authorized users are off limits. In other states, the death of one spouse and the way the credit accounts are set up – either as individuals or joint accounts – determine if the surviving spouse is liable for the debt or if the deceased’s estate must address the balance. Of course, the estate attorney will be able to help navigate those waters, but understanding the way your accounts are set up from the beginning can keep surprises from popping up if you do lose a spouse due to death.
The Prenuptial Agreement
For years, a prenuptial agreement, for some, was considered the death of a marriage before it even began. There’s nothing romantic about these legal documents and many believed (and still do) that it shows a lack of faith in the future from the one pursuing it. Now, they’re a bit more mainstream and almost always part of any second or third marriage. This is important for a number of reasons.
What if you had married years ago and in your marriage, there were two financially aware partners who believed in paying off credit card balances each month? You might have even paid your mortgage off early. Then, your spouse passes away and years later, you meet someone and begin to build a life with that person. The only problem is, this new person in your life may not be as honed in on the importance of strong a credit rating.
That could present untold problems that you’re not comfortable with. A prenuptial agreement and a long hard reality check can protect you moving forward, especially if your new spouse is supporting an ex, has young children or has bankruptcies and foreclosures in his recent past. How well your finances fare moving forward can be determined before you walk down the aisle. You certainly don’t want a new credit card offer with an interest rate you’ve never had to pay before because your joint applicant has had credit problems in the past.
That doesn’t mean your new spouse is necessarily a bad money manager. The fact is, even the most well-prepared people are dealt a lousy hand at some point. Some are better able to recover than others. Not only that but by keeping your own credit sterling, the two of you can enjoy lower interest rates as you set out your new life together – if you’re able to keep her credit from affecting your credit.
Finally, there’s another important reality in our modern society: identity theft. It’s one of the fastest growing crimes in the U.S. Make no mistake: identity thieves plunder through the obituaries in search of those whom they can prey upon in difficult times. If your spouse recently passed away, you’ll want to keep a close eye on your credit scores. That’s often the first time we learn that our identities – or those of our loved ones – have been compromised. You are entitled, by law, to one complimentary credit report annually. In many states, the estate can request a copy of a deceased person’s credit and that can help you keep an eye on any potential problems from that end. (Read: How to Avoid ID Theft)
You or the executor of the estate should contact the bank or other credit card issuers held jointly or in your spouse’s name alone to let them know of your spouse’s death. On joint credit card accounts, ask the credit card company if it will issue a card in your name only. If it’s not the policy to do so, you may be required to open a new account in your name alone. Remember, though, it will affect your credit history, especially if the joint accounts are ones you’ve had for years and you have established a strong payment pattern.
Barry Paperno, consumer operations manager for Fair Isaac Corp., explains, “…if an individual in this situation closes the account altogether, there is a potential impact. Closing an account can lower an individual’s FICO score because it reduces the total amount of credit available to that individual, which can increase the individual’s credit card utilization ratio. This is the ratio of balances to credit limits on revolving accounts.” Regardless of how you handle the logistics of the credit card account, you’re still responsible for making payments to the joint accounts.
New Credit Laws
Keep in mind that credit card issuers will eventually discover that one of the account holders has died. You run the risk of the account being closed with no warning if the bank or card company wouldn’t have approved you for the account on your own. You also run the risk of having the credit limits cut or an increase in the interest rate. The new credit laws do provide some protection in these instances: a bank or credit card network must provide 45 days notice before making changes to the account, such as increasing the APR – though in most instances, it can close an account that has changed from the user’s perspective.
Death or divorce – either way, you should be prepared for changes to your overall financial picture. Otherwise, you could be setting yourself up for tough times ahead.