Couples & Money Category
Dear Liz: My husband is planning to retire this summer after 30 years as a teacher. He is 55, I am 56, and I do not plan to retire until I’m 66. He has to choose among several options for his pension: getting the maximum benefit, which ends when he dies; choosing a reduced amount that continues 100% to me when he dies; choosing a less-reduced amount that offers a 50% payment to me when he dies; or a reduced benefit that’s guaranteed to continue a certain number of months if he dies or increases if I die first. We can’t decide what’s best for us. Can you help?
Answer: Not really, but an experienced fee-only financial planner can.
Choosing a pension payout option is tricky, because you’ll be living with the consequences of this decision for the rest of your life. You want to discuss this with a professional who can review your entire financial situation and give you individualized advice. This person should be someone who is committed to putting your interests first, rather than his or her own. You can get referrals to fee-only financial planners from Garrett Planning Network at http://www.garrettplanningnetwork.com.
Dear Liz: I recently got married and have always had a tight grip on my money. Now, I realize, I sometimes may come off as cheap. However, my husband has quite a different view on how and where money should go. As much as I would like to live “college broke” as long as possible (and I could), my husband has the mentality of, “I work hard for my money so I want to see the fruits of my labor.” How can I find a rational middle ground? We have student loans still and he’s planning to return for one more year of graduate education soon.
Answer: Congratulations. Marrying your financial opposite can be challenging, but it also can help you create a more balanced financial life. Savers can learn how to enjoy life today as well as save for tomorrow, while spenders can learn how budgeting and saving actually free them for a richer life overall.
You’re off to a good start by recognizing that your partner’s perspective is different from, but not worse than, your own. Frugal folks sometimes make the mistake of believing their approach to money is the only right way and insisting their spouses have to shape up, rather than recognizing these issues are subject to discussion and compromise.
Start by talking about retirement — when you’d like to quit work, where you’d like to live, what you’d like to do. Playing around with an online retirement calculator can give you both a better idea of the trade-offs you’ll have to make. An early retirement with lots of travel may require a savings rate that’s greater than he (and perhaps even you) would be willing to sustain. Retiring a bit later and spending somewhat less can lower the savings rate to something more comfortable.
Once you find the middle ground, put your plan into practice. Remember that retirement savings needs to come first, even when you have debts and are saving for other goals. Retirement will be expensive, and a delayed start on saving can cost you dearly.
The exercise of creating a retirement savings plan is good practice for every other discussion you’ll have about money. There are always trade-offs involved, and both halves of a couple need to sign off on a money plan for it to work.
It also can help for each of you to have some “no questions asked” spending money, so you don’t have to discuss and compromise over every dollar you spend. Another helpful idea is the “talk to me” limit in which any purchase over a certain dollar amount requires the consent of the other partner. The amount depends on the details of your finances; try $50 to start.
Dear Liz: A couple of years ago my fiance lost two investment properties due to the housing bust. One house was lost to foreclosure, and the other was sold in a short sale. He has delayed our wedding because of his fear of tax ramifications that would, in his mind, affect my clean record and good credit score. Is he right or is he just delaying our wedding for a bogus reason?
Answer: Let’s be generous and just assume your beloved is a bit misinformed.
Foreclosures and short sales of investment properties can indeed result in tax bills if the proceeds of the sale aren’t enough to cover the mortgage and the resulting deficiency is reported to the IRS. This “forgiven” debt typically would be treated as taxable income to the debtor, unless he or she was insolvent.
But debts incurred before marriage, including tax debts, are the sole responsibility of the person who incurred them. And since there’s no such thing as a “joint” credit report — each person has his or her own — these debts won’t appear on your credit records or affect your credit scores.
That’s not to say pre-marriage debts won’t affect you as a couple, since the money spent on repaying these bills won’t be available for your other, joint goals.
It’s not clear from your question, however, whether he is indeed facing tax bills as a result of losing these properties or simply fears that he might. Another possibility is that he may be sued over any debt that he owes his mortgage lenders. Consultations with a tax professional and perhaps with an attorney familiar with real estate law should help you both get the facts. After that, you jointly can get started on building a plan to deal with his liability, if any.
Of course, if he delays making those appointments, you’ll get a pretty clear answer to your question.
Setting up finances as a couple
- Liz Pulliam Weston
- Recent columns
Many couples have only joint bank accounts, some have only separate accounts and some have a combination. Also, more on paying down a mortgage versus saving for retirement.
Dear Liz: My husband and I have been happily married for a year but have reached a disagreement on how to handle our finances. I think that we should have a joint bank account only to pay bills, with each of us putting in a percentage of our income into it while retaining separate accounts for everything else. He thinks that we should have just a joint account. I’m the main breadwinner, so it’s primarily my money that would be going into the account, and I’m just not comfortable having only a joint account. While I have no problem spotting my husband for things, I don’t like the idea of his being able to spend my money without my say-so. I’m also concerned that if we share an account we won’t be able to surprise each other as we will both be able to see what purchases have been made. Finally, I’m worried that we will both make plans for the same money and that will cause checks to bounce. What is your advice on how to handle this?
Answer: There’s no one right way to set up your finances as a couple, and it may take some trial and error to figure out what works for you.
Half of married couples have only joint bank accounts, according to a Harris Interactive poll, while 18% have only separate accounts. Twenty-nine percent take a combined approach, with both joint and separate accounts, and 3% have no bank accounts.
Those who decide to hold all their accounts jointly often say it helps them to be on the same page financially and supports the idea that they’re working as a team. Those who opt to keep their finances separate may have suffered through bad financial experiences with partners, including divorce, that makes them wary of mingling money.
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The joint-plus-separate approach allows for a bit of both worlds: joint handling of bills and other expenses while keeping some money separate for each person to spend as he or she chooses. If you opt for this approach, though, you’ll need to make sure that all the accounts are adequately funded. For example, the joint account will need to have enough money to cover all the bills you’re likely to face, and the separate accounts should have enough for reasonable personal expenses. Being stingy with the grocery money or a lesser-earning partner’s “allowance” shouldn’t be an option.
What may matter more than the configuration of accounts is how you handle spending decisions. Many couples have a “talk to me” amount, which means any purchase above a certain dollar amount must be discussed with and agreed upon by the partner. The limit could be $50, $100, $500 — it depends on the details of your finances.
You’ll also need to discuss how much to allocate for retirement, debt repayment, vacations and other big expenses, since those budget items affect how much is left over for other spending. And if you have a joint account, both of you should have online access so you can check the balance frequently to avoid overdrafts.
With a little experimentation and a lot of communication, you can find a way to handle your finances that works for both of you.
Dear Liz: My husband is quite a bit older than I (about 18 years). When we married, we agreed that we should put all our savings into joint funds and into his retirement accounts. Our thought was that since I’m younger, we’d have much earlier access to retirement money by funneling it into his retirement accounts (as opposed to mine), and that it was unfair for me to sock away money that he may never have access to.
Intellectually it feels like the fair way to go, since we both work and are equally responsible for our family’s finances. The money we’ve been putting in his retirement accounts will ultimately belong to both of us. But emotionally, I feel anxious about not having my own accounts. Should I just work this out in therapy (joking) or am I right to be concerned? What would you advise for a couple like us with an age difference?
Answer: You are likely to outlive your husband by at least two decades. Rather than focusing on early access to retirement funds, you should be making sure that money lasts for a lifetime: your lifetime, not just his. By the way, considering your own needs is not unfair — it’s sensible. A loving husband wouldn’t want to leave you old, alone and impoverished.
You may not need a session with a therapist, but you should definitely have a meeting with a fee-only financial planner who can review your situation and make sure the needs of both of you are considered.
Dear Liz: The day before my son got married, he proudly had a long-term 800-plus FICO credit score. The day after he got married, his FICO score became 600. It seems his new wife had many outstanding major debts incurred before the marriage. They live in a non-community-property state. How can he rebuild his credit either with or without a divorce?
Answer: Unless your son filed for bankruptcy the day after his wedding, the scenario you describe is pretty much impossible.
Our credit reports don’t get merged or combined when we marry. And it’s highly unlikely that any of the debts his wife incurred before marriage would be added to his credit reports unless he agreed to be added as a joint account holder or an authorized user.
As a practical matter, of course, he’ll want to help his new wife address these debts, since they’ll affect the couple’s life together.
But he’s not legally responsible for them. Because she incurred these bills before the wedding, they’re her separate responsibility in every state — community-property states included.
An appointment with a marriage counselor might be in order if she actively concealed these debts from him. But they needn’t contact divorce attorneys to fix this problem.
They should probably make two more appointments, however: one with a legitimate credit counselor affiliated with the National Foundation for Consumer Credit (www.nfcc.org) and another with an experienced bankruptcy attorney. The counselor and the attorney together will provide a complete picture of her options.
By the way, just as there’s no such thing as a combined credit report, there’s also no such thing as a “long-term” credit score. Each score is a snapshot of your credit situation and changes as the underlying information in your credit reports changes — which is basically all the time.
Dear Liz: My spouse has extremely high credit card debt. All cards are in her name only. Where do I stand legally if she dies or we divorce? What can a person do about such uncontrollable abuse of credit cards? The interest alone is horrific, but she pays it.
Answer: If you live in a community property state and don’t have a prenuptial agreement, debts incurred during marriage are typically considered owed by both parties (even if there’s only one name on the credit card). Community property states include California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
In other states, debts incurred by one spouse are usually that spouse’s responsibility alone, unless the money was used to buy family necessities such as food or shelter. If you divorce, she probably would be responsible for these separate debts. If she dies, creditors could go after her separate property and may be able to go after her half of any jointly held property.
The rules vary enough by state that you’d be smart to consult an attorney about your potential liability.
Wherever you live, though, this debt is affecting your union and your future together. The money she’s paying in interest isn’t available for other purposes, such as saving for retirement or your children’s educations, plus it’s clearly causing tension between you. If you want your marriage to succeed, you should invest in sessions with a marriage counselor and a fee-only financial planner.
Dear Liz: I have reunited with the love of my life. There is one problem: She has a bankruptcy on her record. If I have very strong credit scores and we marry, how will her credit affect my chances of buying a house?
Answer: You each will retain your individual credit reports when you marry. They won’t be combined.
If you plan to use her income to help qualify for a home purchase, though, her credit scores will be used to determine the rate and terms you get. If the bankruptcy is recent or if she hasn’t taken steps to rehabilitate her credit, that means you could pay more interest or have more trouble finding a loan.
If you don’t need her income to qualify, on the other hand, her credit troubles don’t need to affect your loan.
Dear Liz: My wife and I each had excellent credit when we married 10 years ago. We are now divorcing (amicably). Since we married, we have put everything in her name: two houses in succession, three cars, all car insurance and utilities. We refinanced our house in February with her name first.
I recently opened checking and savings accounts in my name only and had my paycheck deposited there instead of our joint account.
What steps should I take before a divorce decree to be sure I retain a great credit score?
Answer: To protect their credit, divorcing couples should make sure to close all joint credit accounts and transfer any balances to the partner who will be responsible for paying the obligation.
The same is true for mortgages and other loans that are in both names. Whenever possible, these debts should be refinanced in the responsible party’s name only.
All this should be done before the divorce is final. Otherwise, your ex can trash your credit — deliberately or not.
If your name is still on the mortgage, car loans or credit cards, your scores could plummet if she misses a payment. You would have little recourse because your creditors aren’t bound by your divorce agreement, even if it plainly requires her to stay up to date on these obligations.
Closing accounts and opening new ones can inflict temporary dings on your credit, but these pale in comparison to the damage done by a single skipped payment. If you want to keep that amicable vibe and your excellent scores, separate your credit accounts now.