December 8, 2014 By

Q&A: Medical debt liability and separation

Dear Liz: You recently answered a question about whether one spouse can be held responsible for the other’s credit card debt. My husband and I are separated and he recently was diagnosed with cancer. He is unemployed with no health insurance and high hospital bills and back child support payments. In the event of his death, will I be liable for his debts?

Answer: You need to talk to an attorney to determine your liability for his medical bills, since it depends on state law. Some states don’t hold spouses liable for these bills if they’re legally separated, while others do. In any case, his estate will still owe the unpaid child support, and child support typically has a higher priority for payment than most other creditor’s claims when an estate is settled. In general, creditors have to be paid before the rest of the assets can be distributed to heirs.

Filed Under: Credit & Debt, Divorce & Money, Q&A Tagged With: , , ,
October 27, 2014 By

Q&A: Social Security spousal benefits and divorce

Dear Liz: My fiancé was married to a wealthy woman for over 10 years. Will he lose his opportunity to use her earnings record as the basis for his Social Security retirement benefits if we get married?

Answer: The short answer is yes. Spousal benefits for divorced people are available only to those who remain unmarried. Many people confuse spousal benefits with survivors benefits. Survivors benefits for widows, widowers and divorced spouses of the deceased can continue after the recipient remarries, but only if the remarriage occurs after age 60.
You shouldn’t assume that your fiancé’s spousal benefits necessarily will be larger than his own benefit. His ex could have been wealthy without being a high earner. Even if she did, 100% of his own benefit could be worth more than 50% of hers. To find out for sure, he needs to contact the Social Security Administration.

Filed Under: Divorce & Money, Q&A Tagged With: , ,
May 26, 2014 By

Q&A: Social Security Benefits and Divorce

Dear Liz: I am 53 and divorced. My ex-husband died at the age of 49 and had contributed significantly to Social Security. I don’t plan to remarry. Would I be able to make any claim on his record as an ex-spouse when I reach age 62, or would he have had to reach retirement age for this to be possible?

Answer: If your marriage lasted at least 10 years, you could get the same benefits as a widow or widower. We’ll assume your ex was “fully insured” under Social Security, which means he paid enough into the system to qualify for benefits.

For the sake of brevity, we’ll also assume that you’re not disabled or caring for his minor or disabled child. (You could still qualify for benefits if any of these were true, but the rules would be somewhat different.)

Your survivors’ checks would be based on what he would have received had he survived until retirement (a sum known as his primary insurance amount). If he had been 62 or older when he died and had started receiving Social Security checks, your benefit would have been based on what he was actually receiving.

You can start survivors’ benefits as early as age 60 if you’re not disabled. If you start benefits before your own full retirement age, however, your benefits will be reduced because of the early start. Another thing to keep in mind is that if you don’t apply until age 62 or later and your own retirement benefits are larger than your widows’ benefit, you’ll get your own benefit instead.

On the other hand, you’re allowed to switch from his benefit to your own at any point between age 62 and age 70. It’s possible that your own benefit, left untouched to grow, eventually could exceed your survivors’ benefit. Obviously, this decision will involve crunching some numbers to see which approach makes the most sense. The Social Security Administration suggests you contact your local office or call (800) 772-1213 to learn how much you could receive on your ex’s work record, since that’s not information you can access online.

One other thing you should know: Since you’d be getting survivors’ rather than spousal benefits, you could remarry after you reach age 60 without endangering your checks. Those whose exes are still alive have to refrain from remarrying if they want their spousal benefits to continue.

Filed Under: Divorce & Money, Estate planning, Q&A Tagged With: , , ,
May 29, 2013 By

Split credit accounts when you split with a spouse

Dear Liz: I just finished paying off my last credit card and checked my credit report as I am now separated from my wife. I found we had one joint account that she had not been paying. There are two stretches of five months each of no payment.

I immediately called up the creditor and paid off the balance and the creditor closed the account due to the lack of payments. This one account killed my credit score. I also found two old accounts on my credit report that are both still active but I have not used them for years. Both accounts are in good standing.

I was thinking that if I started using the accounts again, paying them off each month, it would boost my credit score faster. I am looking to buy a house this summer and would have an easier time with a better score. Do you think using the old accounts would help improve my score faster or do you think my score would be better if I closed those accounts?

Answer: Closing accounts can’t help your credit scores and may hurt them. You should avoid closing any credit account when you’re trying to improve your credit rating.

Your experience shows why it’s so important to separate financial accounts when you’re separating from a spouse. Failure to pay any joint account can hurt both parties’ scores. This would be true even if you were divorced and had a divorce decree making her responsible for the debt. Your creditors don’t have to pay attention to such agreements.

Lightly using a few credit cards can help you recover from missteps like this one. “Lightly” means charging 10% or less of their credit limits, and you should pay the balances in full each month, since carrying credit card debt doesn’t help your scores. You shouldn’t expect your scores to bounce back overnight, however. If you had good scores before this incident, it may take you a few years to recover completely.

Filed Under: Credit & Debt, Credit Cards, Credit Scoring, Divorce & Money, Q&A Tagged With: , , , , , ,
August 28, 2012 By

Now available: My new book!

Do you have questions about money? Here’s a secret: we all do, and sometimes finding the right answers can be tough. My new book, “There Are No Dumb Questions About Money,” can make it easier for you to figure out your financial world.

I’ve taken your toughest questions about money and answered them in a clear, easy-to-read format. This book can help you manage your spending, improve your credit and find the best way to pay off debt. It can help you make the right choices when you’re investing, paying for your children’s education and prioritizing your financial goals. I’ve also tackled the difficult, emotional side of money: how to get on the same page with your partner, cope with spendthrift children (or parents!) and talk about end-of-life issues that can be so difficult to discuss. (And if you think your family is dysfunctional about money, read Chapter 5…you’ll either find answers to your problems, or be grateful that your situation isn’t as bad as some of the ones described there!)

Interested? You can buy this ebook on iTunes or on Amazon.

Filed Under: Annuities, Banking, Bankruptcy, Budgeting, College, College Savings, Couples & Money, Credit & Debt, Credit Cards, Credit Counseling, Credit Scoring, Divorce & Money, Elder Care, Estate planning, Financial Advisors, Identity Theft, Insurance, Investing, Kids & Money, Liz's Blog, Real Estate, Retirement, Saving Money, Student Loans, Taxes, The Basics Tagged With: , , , , , , , , , , , , , , , , , , , , , ,
July 23, 2012 By

Short sales, foreclosures have similar effect on credit scores

Dear Liz: I went through a divorce in the last year after being separated for two years. During our separation, we closed credit cards with high balances to make sure neither party would spend more on credit. We also had to short sell our home. So, as a single woman in her mid-30s, I have credit that’s somewhat shot for now. How many months should I expect the short sale to affect my credit scores? And was closing the credit card accounts good or bad for my credit?

Answer: Closing credit accounts can’t help your credit scores and may hurt them. In a divorce, however, it’s usually wise to close all joint accounts. Otherwise, your credit rating is in the hands of your ex-spouse, who could trash your scores by paying accounts late or maxing out credit lines.

In any case, the short sale probably had a much greater effect on your credit than the account closures. Short sales typically damage your credit as much as a foreclosure, according to the company that created the leading FICO credit score. Recovery times are measured in years, not months. If your scores weren’t that high to begin with — say 680 in the 300-to-850 FICO scale — it would take about three years for your numbers to return to their old levels. If your scores were high, say 780, it would take about seven years to restore them to their old peaks.

These recovery times assume you handle credit responsibly from now on. That means having and lightly using a credit card or two, making all payments on time and ensuring no account goes to collections.

Filed Under: Credit & Debt, Credit Scoring, Divorce & Money, Q&A, Real Estate Tagged With: , , , , , , , , ,