All couples benefit from clearly agreeing who will pay for the rent, car installments, or groceries. When you live together, you must also decide whether to pool your money and the property you buy with that money, or keep it all separate. This section provides an overview of an unmarried couple's rights and responsibilities when it comes to debt and credit. Once you understand these, you'll be better prepared to write out your agreement about sharing money and property—equally, partially, or not at all.
Unlike marriage, living together does not make you responsible for your partner's debts. Should your partner declare bankruptcy or face other debt problems, you won't lose your property as long as you've kept it separate. Your wages cannot be attached and your property cannot be taken to pay for your partner's overdue bills or debts, and your credit rating will not be negatively affected by your partner's financial problems.
But this financial independence may suddenly disappear if:
• you sign a joint purchase agreement
• you cosign a loan with your partner obligating yourself to pay the debt if the person taking out the loan fails to do so
• your partner's debt is charged to a shared or joint account, or
• you register as domestic partners, in some situations.
There are many different ways to pool money—not at all, completely, or on a limited basis. It's up to you. You should have no problem opening a joint checking or banking account under both your names. In general, joint accounts are sensible if you limit their purpose (for example, for specific household expenses or for travel) and keep adequate records. Many unmarried couples have peacefully maintained joint bank accounts for years.
But a joint account is still a risk. Each person has the right to spend all the money. Both partners are responsible for all activity involving the account. You're equally liable for bounced checks, overdrafts, and all the rest. This can cause big problems if one of you is a habitual overspender. Record keeping can pose another problem with joint accounts. It's often difficult to keep track of how much money is in the account when two people are writing checks and making withdrawals. You'll have to set up a reliable method of tracking these things and then resolve to stick to it.
If you want to do everything possible to keep property ownership separate, it's best not to open joint accounts. If you do, sign an Agreement to Keep Property Separate.
As with bank accounts, you may want to keep your credit accounts separate and each deal with creditors on your own terms. In that way you don't have to worry about the other person's purchases and any potential damage to your credit rating. Nevertheless, many unmarried couples open joint credit card accounts in which both partners are authorized by the credit lender to charge up to a credit limit.You can open a joint account for broad purposes, such as paying household expenses or to fund a distinct project—for example, remodeling a kitchen, saving for a vacation, or making a joint investment. Or you may use a joint card solely for household purchases, and use your individual cards for all other expenditures.
It's fairly easy to put two names on a credit card. You simply fill out a joint credit card application. Many companies have changed the blanks from "spouse" to "co-applicant" or "co-applicant/spouse." If the application form only says "spouse," cross off the word "spouse" and write in "co-applicant." Don't claim to be a spouse—that term has a specific legal meaning (having to do with liability and responsibility), and lying on a credit application is fraud.
As long as one of you has sufficient income or savings to be considered a good credit risk—that is, you appear to be able to pay the bills—you'll probably get the credit card. If one of you has a poor credit history, you may be denied a joint card, even if the other's credit is perfect. The partner with better credit may have to reapply in his or her name only.
If you've lived together for a long time or have had joint credit card or bank accounts, it's possible that your credit report has become intertwined with that of your partner or has information on it that belongs only to him or her, and not to you. This is usually not to your advantage, especially if your partner has bad credit.
Your credit report contains your credit history. Credit reports are maintained by credit bureaus—companies that collect information related to your creditworthiness, including your bank and credit card accounts, loans (such as mortgages, car loans, and student loans), payment history on those loans and accounts, delinquencies on accounts, bankruptcy filings, criminal arrests and convictions, current and previous employers, lawsuits and judgments against you, and tax or other liens. Creditors, landlords, employers, banks, and collection agencies can request and review your credit report.
Unfortunately, many credit reports contain inaccurate or outdated information. If you have some joint accounts with your partner or have been living together for a long time, the credit bureaus may have included information on your credit record about your partner's separate accounts. Information about separate accounts should only appear on the report of the partner responsible for that account. Information about joint accounts should appear on both reports.
Each partner should request a copy of his or her credit report and review it for errors or outdated information. It's a good idea to do this every year. Contact one of the three major national credit bureaus to get your report.
The federal Fair Credit Reporting Act (FCRA) now requires each major national credit bureau—Equifax, Experian, and Trans Union—to provide you one free copy of your credit report each year. You can request your free report by phone (877-322-8228) or online at annualcreditreport.com.
You may be entitled to additional free copies of your credit report in certain circumstances, such as if you believe that your credit file contains errors due to fraud, such as identity theft.
If you find errors on your report (for example, a car loan for which your partner is the only signatory) or outdated information, notify the credit bureau in writing. The bureau is required by law to correct your report. If the bureau investigates the item and disagrees with you, at the very least you can include a brief explanation on your report about the disputed item.
The Personal Finance section of the Nolo website includes extensive articles on credit and credit repair. Another useful resource is Credit Repair, by Robin Leonard and Margaret Reiter (Nolo).
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