When you're building a relationship, building joint credit feels like a natural rung on the ladder. But if the romance happens to sour, that same joint credit can become the backbone of financial devastation.
Scores of the newly divorced, separated or uncoupled who have co-signed for cars and leases or have joint plastic tucked in their wallets are left holding all -- or most of -- these financial bags post breakup. And those bags can get pretty heavy.
"That means someone may be stuck trying to make payments he or she can't afford," says Dan Danford, principal and chief executive officer at Family Investment Center, a commission-free investment management firm in St. Joseph. And that can impact your credit.
Even though few people enter a relationship with the intention of ruining their new mate's credit, many experience this unfortunate outcome of uncoupling. "Beyond not being able to pay your own bills, an ex not paying his or her share of joint accounts can be especially dangerous," says Danford. "Normally, a person knows they're not paying their own bills. But it's common for people to not know an ex hasn't paid until they're served a summons or being hounded by collection agencies." Which means months of late or missed payments have already been reported to credit bureaus and lowered your score.
"I had no idea my ex wasn't paying off the bills he agreed to take on after we split up," says Chloe Martin of Chicago, Illinois. "I found out by accident, when I tried to make an appointment at the vet's office and was told the account had been sent to collection."
According to a survey conducted by LeaseTrader.com, an overloaded budget and the potential of a shattered credit score are plaguing new singles, or those on the verge of being legally single again. The survey says the most common bag a person is likely to be left holding is housing: rent or mortgage. Car loans and leases, credit cards (major cards as well as retail (store) cards), property damage/repairs and pet responsibility round out the top five heaviest bags.
That's why experts say it's wise to check the number of financial bags each of you are -- or might be -- carrying now. Just in case your relationship hits a bump later on.
Protect your score
If you're about to be riding in the single lane, Danford says the best way to protect your credit is to communicate. "Make sure you've told everyone who needs to know that you're now [or soon to be] single and discuss what you're responsible for." Most importantly, he says you should note what you're not responsible for. "That will eliminate a lot of the confusion and potential plunging of your credit."
Other helpful tips:
Years after a split, both names could remain on a property's mortgage or deed. To thwart confusion, notify all lenders of your split and ask what formal notification is required to properly re-title the account or assets and amend the title. "Just having a divorce decree isn't enough to accomplish this," Danford cautions. "In most instances, separate steps must be taken."
Close joint accounts that have zero balances and notify all creditors -- including bank lines of credit -- that you want to block any new charges.
Formally notify all three credit bureaus (Experian, Equifax and Trans Union) of the split and division of debt. "It can't hurt to have a written notification in your file in case a problem arises later on," advises Danford.
Preventing a problem
Uneven financial bags can also hurt those who are happily married or newly committed. Renee A. Hansen, a senior financial adviser with Ameriprise Financial Services and a private wealth adviser in Phoenix, suggests that the best way to handle a financial meltdown is to sidestep one altogether. "Keeping credit accounts separate is really the best way to go," she advises.
"In the event one person loses their job or is suddenly unable to earn an income [due to illness or accident], the other isn't left in an unrealistic financial position," Hansen continues. Translation: You won't get stuck carrying more financial responsibility than your income can handle. She adds, "It's not about 'sticking it' to your mate. It's about protecting one-half of your household's credit score."
That protection, Hanson says, comes from partners making sure they aren't responsible for more than they're actually able to pay and not, Hansen adds, "what they 'hope' they can someday pay."
A semiannual review of what you're both bringing in vs. what needs to go out, Hansen says, keeps bags balanced fairly. "Pick two times a year that are easy to remember, like when you file your taxes and your birthday, or when the clocks change for daylight savings time, to review your financial picture," she suggests.
She also urges separating financial obligations whenever possible -- no matter how solid your romantic union is. "This lets you both build solid scores," she explains. And in the event one of you takes a hit, the other's credit won't suffer as much as if everything were linked together.
"Carry utilities in separate names, too," Hansen suggests. "One can take the electricity, the other the phone."
Not mixing credit with love is especially helpful for unmarried couples. Those at the greatest risk in this situation are cohabitating couples. "Without the ability for a judge to divide debts via a divorce proceeding, this can get very ugly," says Danford.
Danford recommends couples (married or not) review their credit scores together. "An annual review keeps everyone in the loop on where your household stands." It will also indicate a problem. "Reviewing scores can help a couple determine if one partner's credit is over- or under-exposed," Danford says. "It can indicate areas that need tweaks and adjustments before a major crisis arises."
The bottom line
The most in-love of lovebirds should always think twice before co-signing on the dotted line. "You've got to consider how co-mingling credit can affect either of you in the long run," cautions Hansen.
And in the unfortunate event your relationship does sour, don't expect your ex to carry through on financial promises made while you were still a couple. Danford says it's quite common for those promises to be swept under the carpet during a divorce or break-up.
If you do get left holding the bag, credit counseling and debt repayment programs can help. "Many creditors will arrange for payment plans," says Danford, "after being given a copy of a divorce agreement."
Gina Roberts-Grey is a freelance writer specializing in consumer issues.