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Establishing credit after a divorce

For divorcing couples in Michigan that have joint bank accounts and commingled assets, the prospect of property division may seem daunting. However, an additional surprise may be in store for a parent who had been dedicated to full-time care of the children. Without a separate income source, that stay-at-home parent may have had difficulty obtaining credit after the divorce.

The obstacle was actually the result of a 2009 federal law, called the Credit Card Accountability, Responsibility, and Disclosure Act. The CARD Act prevented credit applicants from relying on family income, to the extent the applicant could not cite an individual contribution or income source. For example, college students could not apply for credit on the basis of their parents’ income.

The federal agency responsible for regulating consumer financial products recently announced that it would be amending this unintended consequence of the CARD Act to divorcing spouses who are 21 years or older. However, such applicants will have to demonstrate an anticipated source of future income from their former joint savings, perhaps in the form of a property division agreement, alimony, or lump sum payment from the divorce proceeding.

Although the revised rule will likely help many divorcing couples, it serves as a reminder about the financial planning issues that are best served through a proactive approach. For example, a meeting with a divorce attorney might benefit even those couples that are happily married. Such a professional might examine the finances and assets in a marriage, and possibly offer ways for each spouse to develop separate credit histories. A postnuptial agreement might also accomplish the same end.

Source: forbes.com, “Good News For Divorcing Women: Credit Reform, Reformed!” Jeff Landers, May 7, 2013

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Establishing credit after a divorce | Peter A D'Angelo, Attorney at Law, PLC