Couples & Money

Q&A:Prenup may help with student loan issue

February 20, 2017 By Liz Weston

Dear Liz: You recently heard from someone who discovered after marriage that his wife had more than $100,000 in student loans. Would having a prenuptial agreement help in this situation?

Answer: Possibly. Debts incurred before marriage are considered separate rather than joint debts, but creditors still sometimes try to go after joint assets to get paid. A prenuptial agreement, which is a written contract created before marriage, could help a couple limit liability for each other’s debts.

In this case, the husband was willing to help his wife resolve the debts, but knowing about them before marriage would have been helpful — to put it mildly. The loans probably would have turned up during the financial disclosures required when drafting a prenuptial agreement. Even couples who won’t consider a prenup should pull their credit reports together so each knows what he or she is getting into.

Q&A: When a new spouse brings surprise debt to the marriage

January 16, 2017 By Liz Weston

Dear Liz: I’m 58 and got married for the first time almost two years ago. I discovered my wife has several incredibly large outstanding student loans, including a parent Plus loan for her son’s education that she thought was in deferment and that has nearly doubled to well over $100,000. In addition, my wife has her own student loans, which total over $40,000 and have rates from 3% to nearly 7%. Needless to say, I was shocked and dismayed to discover this debt and wish she had shared it with me earlier.

We have looked into consolidating the loans into the U.S. Department of Education’s student debt relief program, which creates a monthly payment program based on income and forgives the remaining balance after 25 years. I’m uncomfortable with this plan. The long duration of monthly payments would be a big struggle and, after 25 years, we would have paid nearly $40,000 over the current principal even with the outstanding balance being forgiven.

I’m contemplating liquidating all my non-retirement accounts and half of our savings to pay off the larger parent PLUS loan.This would leave us with very little liquid reserve but still some substantial retirement accounts. Our combined income is around $75,000. We would then consolidate my wife’s lower-rate debt and try to take a personal loan out to pay off the higher rate loans if we can secure a lower rate. Do you have any other suggestions as to my options?

Answer: Your situation is a perfect example of why couples should review each other’s credit reports before marriage. At the very least, you could have figured out a plan to deal with the debt at least two years earlier and saved the interest that’s accrued since then.

As you probably know, your wife is stuck with this debt. The government can pursue her to her grave because there’s no statute of limitations on federal student loan debt collections. The government also can take part of her Social Security retirement or disability checks, something collectors of other kinds of debt can’t do. Even bankruptcy isn’t a viable option for most borrowers because student loan debt is extremely hard to get erased.

It’s understandable that you don’t want to be making student loan payments into your 80s, but paying the loans off much faster probably isn’t a reasonable option, given your income. So liquidating other assets to pay off the parent loan may be the best option. The wisdom of this approach, however, depends on how well you’ve saved for retirement, your job security and how much of an emergency fund would remain. If you lost your job after paying off the parent loan, you couldn’t get that money back to pay your expenses. By contrast, you could have your payment lowered under the Department of Education’s plan if you lost a source of income.

Consolidating your wife’s debt inside the federal student loan program would allow her to retain some important consumer protections that aren’t available with other debt, such as the ability to defer payments for up to three years if she faces an economic setback. If you do refinance your wife’s debt with private lenders to lower the rate, consider doing so with a private student loan rather than a personal loan if you want to retain the ability to write off the interest.

This is a complex decision with a lot of moving parts, so you’d be smart to discuss your plan with a fee-only financial planner before deciding what to do.

Q&A: Remarrying late in life

December 12, 2016 By Liz Weston

Dear Liz: This is regarding the letter from the children worried about their widowed father remarrying. My father remarried a year after my mother died. He was 86. His wife and her family gave him love, care and companionship until his death at 93. I gained a wonderful new family whom I love. Once my dad asked how I would feel if he included his wife in his will. My response was that it was his money and he should do whatever he wanted. He raised me, sent me to college and was a kind and caring person. He owed me nothing else.

Answer: Thank you for sharing your positive experience with your stepmother and her family. Late-in-life companionship can be a real blessing.

Unfortunately, some predators target lonely older people and isolate them from their families as a way to get control of their finances. The predator paints the children’s attempts to intervene as “proof” of their greed. The original letter writers had seen this scenario play out in other families and hoped to avoid it in their own.

Q&A: Financial benefits of marriage

March 7, 2016 By Liz Weston

Dear Liz: My registered domestic partner and I are both 64. We have similar incomes, similar 401(k) accounts and own a home together. We plan on retiring at 66, at which time we will also get similar Social Security benefits. We are each other’s beneficiary on all insurance, accounts, etc. My question: Now that the Supreme Court has made it legal, would it benefit us financially to get married? We’ve never felt an emotional need for that validation but are questioning whether it would make sense for other practical reasons.

Answer: When incomes are dissimilar, there’s a strong argument to be made for marriage. The lower earner may get more from a Social Security spousal benefit than from his or her own retirement benefit. In addition, the lower earner could get a much bigger survivor benefit, since a survivor gets the larger of the couple’s two Social Security checks.

If either of you had a traditional pension, a spouse would be entitled to survivor benefits that an unmarried partner can’t claim. And if you were of dramatically different ages, marriage would allow a younger survivor to put off starting mandatory withdrawals from inherited accounts.

Marriage also has estate planning advantages, but those primarily benefit wealthy couples (see above). If you do remain unmarried, you’ll want to make sure you both have powers of attorney for healthcare and finances so you can make decisions if the other becomes incapacitated.

There are many other benefits to marriage, which the self-help legal publisher Nolo has summarized at http://bit.ly/1mOmpZA. You also might want to talk to a fee-only financial planner who has experience with same-sex couples to make sure that your assets and rights are adequately protected if you remain unmarried.

Q&A: Why your W-4 forms are likely ‘wrong’

February 1, 2016 By Liz Weston

Dear Liz: After being an unmarried couple for 15 years, we were married in February 2014. Though I sent this information to my company’s benefits department, I neglected to change my W-4 status from “single” to “married.” I’m crossing my fingers that when all is said and done, we have paid the correct taxes when we filed for 2014 (we filed jointly as married) regardless of what was withheld pursuant to the W-4. Or do I need to inform the IRS of the oversight for the 2014 and 2015 tax years?

Answer: Best wishes on your marriage, and don’t worry. Since you were married as of Dec. 31, 2014, and you filed as a married couple for 2014, you’re good — assuming, of course, you used current tax software or IRS tax tables for married filing jointly.

The W-4 form is meant to tell your employer how much of your paycheck you want withheld. Most people’s W-4s are “wrong” in the sense that they have the government withhold too much. They get fat refunds that average close to $3,000, but they aren’t penalized for doing so (other than not having access to their own money until they get that refund, of course).

If you’re getting refunds, you can tweak your withholding when you visit your benefits department to update your W-4. The IRS and TurboTax, among other sites, have online calculators to help you figure out what you should have withheld.

While you’re there, check your beneficiaries for any workplace retirement plans and life insurance. Federal law says your spouse must be the beneficiary of your retirement plan unless he or she signs a waiver. Life insurance, by contrast, goes to the named beneficiary even if you subsequently marry.