My Today’s Alerts series highlights ideas generated in my divorce financial advisory practice.
Closing a jointly owned credit card account reduces access to credit which, in turn, typically increases your “utilization rate”. The utilization rate is the ratio of credit card debt to available credit. A higher utilization rate means that you are getting closer to using all your available credit, and thus a lower score.
You may not want to (or need to) close your joint account if you are planning a major credit purchase and/or you can work well with your spouse after your divorce. Closing the account would reduce credit available, increase your utilization rate, and potentially hurt your credit score.
However, be warned. Your credit score will fall if your spouse continues to charge on your jointly owned card after divorce or fails to make payments he or she was order by the court to pay. American Express and other credit card issuers don’t care about your divorce decree or who spent what money. Issuers will look to both spouses for repayment on a jointly owned card.
In order to decide whether to close a joint credit card account, you must balance how much credit you’ll need after divorce with how responsible your spouse can be with his or her credit card spending and payments after divorce. If your spouse cannot be relied upon to act responsibly, you could transfer debt allocated to each spouse in divorce to individually owned cards (or use cash to pay off balances) and close joint accounts.
One last comment. Many credit card users are not owners of the card. They are “authorized signatories”. As an authorized user, your credit score is neither improved by past payments or hurt for past delinquency. Before you file for divorce, call your credit card issuer to see if you “own” your card. Also, review your credit report at http://www.annuacreditreport.com. If you don’t have a credit score and your spouse’s credit is good, you may be able to apply for your own card while you are still married. To establish a credit history, use the card sparingly and make timely payments. As always, check with your attorney before making any financial moves once you’ve separated or filed for divorce.
Robertson Stephens Wealth Management and Divorce Planning of Austin work with clients and their attorneys to help insure that financial accounts are divided in the most efficient manner possible.
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