Discovered debt

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fenyahyhi
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Discovered debt

Post by fenyahyhi » Fri Nov 24, 2017 11:50 am

My friend has been married 25 years and keeps the finances with her husband separate, although they live in a community property state. She has been the sole support of the family all these years. He has a business that apparently generates no income, either on their tax return or in terms of a financial contribution to running the household. She has presumed that he has earned enough to cover his own expenses. She is 65, he is 67.

She was starting to plan if/when to retire and started querying him about where he stood financially. His response was the typical one for him, about his ship was about to come in and soon he would be raking in the dough. She finally started demanding numbers, opening his mail (with his knowledge), and having a look. He has $200,000 in credit card debt; a dozen credit cards used like in a shell game. Okay, yikes.

They are meeting with an accountant next week to see if any of that debt can be made to disappear via bankruptcy or anything else. Apart from that, her advisors are telling her that yes, she too is liable for the debt since it is all community property. And even divorce would not solve that problem; she does not want a divorce.

My advice was if she is really sure she is on the hook for the debt then she should just start looking at in terms of interest rates and investment income. She has $900K in her tax-protected accounts, has created tax-protected accounts for him that are now at $50K, plus has $300K in regular taxable accounts. I recommended that she pull money out of her accounts and pay off any credit card with a non-zero interest rate.

She wanted to know which accounts first - his tIRA, his Roth, her tIRA, her Roth, or the taxable account. My answer was to do it by the tax rate the income would generate. For instance she might want to keep their taxable income at the 25% level, so pull enough out of a tIRA to fill up that tax bracket, then pull out of the taxable account next. My thought is that she might want a couple of year's living expenses in taxable but they don't need more since they are old enough for free access to the tax-protected accounts.

Any other financial advice I should pass on?

chevca
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Re: Discovered debt

Post by chevca » Fri Nov 24, 2017 12:00 pm

I'd say your advice to the friend is about as good as it's gonna get. That sounds like a reasonable plan to handle taxes while paying it down.

So, she saved over a million dollars over that time and he created $200k in debt... wow, something to be said for keeping all finances together as a married couple, IMO.

fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Fri Nov 24, 2017 12:10 pm

Makes me grateful my husband and I each look at every dollar that gets spent

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TheTimeLord
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Re: Discovered debt

Post by TheTimeLord » Fri Nov 24, 2017 12:20 pm

https://www.nolo.com/legal-encyclopedia ... 29572.html
Community Property States

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (In Alaska, spouses can sign an agreement making their assets community property, but few people choose to do this.)

Debts. In community property states, most debts incurred by either spouse during the marriage are owed by the "community" (the couple), even if only one spouse signed the paperwork for a debt. The key here is during the marriage. So if you incur a debt, such as a student loan, while you're single, and then get married, it won't automatically become a joint debt. (An exception is where a spouse signs on to an account as a joint account holder after getting married.) Some states, like Texas, have a more nuanced way of analyzing who owes what debts by evaluating who incurred the debt, for what purpose, and when.
After a legal separation or divorce, a debt is generally owed only by the spouse who incurred the debt, unless the debt was incurred for family necessities, to maintain jointly owned assets (for example, to fix a leaking roof), or if the spouses keep a joint account.
............

Removing a spouse's liability. Couples in community property states can sign an agreement with each other to have their debts and income treated separately. Signing a pre- or postnuptial agreement like this can make sense for a couple before one spouse goes into business. (But if you're already in business, signing an agreement now won't protect your spouse from liability for business debts that you already owe, only from liability for future business debts.)
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fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Fri Nov 24, 2017 12:29 pm

They are in California and all of the debts were incurred during the marriage (as would make sense since they've been married 25 years).

One of her advisors had told her about the agreement to sever finances, but of course that won't affect the past debts/income. And no, they didn't sign a prenup.

Dottie57
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Re: Discovered debt

Post by Dottie57 » Fri Nov 24, 2017 12:37 pm

It should first come out of any accounts in his name. Then taxable. Get a legal agreement involving a lawyer that each person's debts are their own. He also needs a job unless disabled. Cut up the credit cards. Close the credi card accounts. Mail goes to P.O. Box so it can be monitored.
Last edited by Dottie57 on Fri Nov 24, 2017 3:46 pm, edited 1 time in total.

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TheTimeLord
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Re: Discovered debt

Post by TheTimeLord » Fri Nov 24, 2017 12:46 pm

fenyahyhi wrote:
Fri Nov 24, 2017 12:29 pm
They are in California and all of the debts were incurred during the marriage (as would make sense since they've been married 25 years).

One of her advisors had told her about the agreement to sever finances, but of course that won't affect the past debts/income. And no, they didn't sign a prenup.
As part of working this out, she might want to get a post-nup.
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TheTimeLord
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Re: Discovered debt

Post by TheTimeLord » Fri Nov 24, 2017 12:47 pm

Dottie57 wrote:
Fri Nov 24, 2017 12:37 pm
It should first come out of any accounts in his name. Then taxable. Get a legal agreement involving a lawyer that each person's debts are their own. He also needs a job unless disabled. Cut up the credit cards. Clear se the accounts. Mail goes to P.O. Box so it can be monitored.
Wouldn't be easier just to have him pull his credit report quarterly to see the accounts and balances established in his name?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

Dottie57
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Re: Discovered debt

Post by Dottie57 » Fri Nov 24, 2017 12:51 pm

TheTimeLord wrote:
Fri Nov 24, 2017 12:47 pm
Dottie57 wrote:
Fri Nov 24, 2017 12:37 pm
It should first come out of any accounts in his name. Then taxable. Get a legal agreement involving a lawyer that each person's debts are their own. He also needs a job unless disabled. Cut up the credit cards. Close the accounts. Mail goes to P.O. Box so it can be monitored.
Wouldn't be easier just to have him pull his credit report quarterly to see the accounts and balances established in his name?
I didn't think of that. :)

fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Fri Nov 24, 2017 1:08 pm

I did recommend to her that she scour his credit report for all debts, and that she get a new free report once every four months from a different company. She doesn't believe he is a liar or cheat, just absolutely unable to add or focus on numbers. Or balance a checkbook.

chevca
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Re: Discovered debt

Post by chevca » Fri Nov 24, 2017 1:17 pm

Will they be joining finances from here on out?

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Re: Discovered debt

Post by abuss368 » Fri Nov 24, 2017 1:28 pm

Wow! What is a tax protected account? Do you mean a tax advantaged account?

I would try not to use investment assets given the age. What about a bank loan? Delay retirement and throw everything possible at the loan? Use the cash flows from dividend income on the taxable account to pay debt?
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fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Fri Nov 24, 2017 1:51 pm

I'm not clear about the best order of withdrawal;

SCENARIO 1
his tIRA
then his Roth
then her tIRA up to top of bracket
then the taxable

or

SCENARIO 2
his tIRA
then her tIRA up to top of bracket
then the taxable
without hitting the Roth at all


If you take out the emotional element ("he caused this problem"), then scenario 2 makes the most sense as it keeps the Roths as fully funded as possible. But scenario 1 has the advantage of feeling like more of a burden on him, which is appropriate, even though all of these accounts are ultimately community property.

fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Fri Nov 24, 2017 1:53 pm

chevca wrote:
Fri Nov 24, 2017 1:17 pm
Will they be joining finances from here on out?
I know I wouldn't. One enters marriage with high hopes for your joint future and I can see a good argument for not having a pre-nuptial. But now it is the voice of experience over hope, and a post-nuptial would certainly be appropriate.

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goingup
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Re: Discovered debt

Post by goingup » Fri Nov 24, 2017 2:17 pm

If this were my spouse I would not be so quick to discharge the $200K debt without knowing everything about it. I certainly wouldn't use my retirement accounts to do so. It's time to explore ideas about bankruptcy, severing debt, and divorce.

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Re: Discovered debt

Post by ThePrince » Fri Nov 24, 2017 2:22 pm

fenyahyhi wrote:
Fri Nov 24, 2017 11:50 am
My friend has been married 25 years and keeps the finances with her husband separate, although they live in a community property state. She has been the sole support of the family all these years. He has a business that apparently generates no income, either on their tax return or in terms of a financial contribution to running the household. She has presumed that he has earned enough to cover his own expenses. She is 65, he is 67.

She was starting to plan if/when to retire and started querying him about where he stood financially. His response was the typical one for him, about his ship was about to come in and soon he would be raking in the dough. She finally started demanding numbers, opening his mail (with his knowledge), and having a look. He has $200,000 in credit card debt; a dozen credit cards used like in a shell game. Okay, yikes.

They are meeting with an accountant next week to see if any of that debt can be made to disappear via bankruptcy or anything else. Apart from that, her advisors are telling her that yes, she too is liable for the debt since it is all community property. And even divorce would not solve that problem; she does not want a divorce.

My advice was if she is really sure she is on the hook for the debt then she should just start looking at in terms of interest rates and investment income. She has $900K in her tax-protected accounts, has created tax-protected accounts for him that are now at $50K, plus has $300K in regular taxable accounts. I recommended that she pull money out of her accounts and pay off any credit card with a non-zero interest rate.

She wanted to know which accounts first - his tIRA, his Roth, her tIRA, her Roth, or the taxable account. My answer was to do it by the tax rate the income would generate. For instance she might want to keep their taxable income at the 25% level, so pull enough out of a tIRA to fill up that tax bracket, then pull out of the taxable account next. My thought is that she might want a couple of year's living expenses in taxable but they don't need more since they are old enough for free access to the tax-protected accounts.

Any other financial advice I should pass on?
One reason of a few, married couples should not keep separate finances. Two become one, marriage isnt a joint venture.

delamer
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Re: Discovered debt

Post by delamer » Fri Nov 24, 2017 2:22 pm

Who are these advisers that your friend is listening to? Why would she and her husband be seeing an accountant rather than a bankruptcy attorney?

grettman
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Re: Discovered debt

Post by grettman » Fri Nov 24, 2017 2:26 pm

Married for 25 years and this asteroid of a mess was just discovered. Wow. I am doubling down on my Thanksgiving "Thanks" for the relationship I have with my wife. So sad. Anyway, I agree with the poster above. I would liquidate a dime to fix this mess -- not yet. Has the problem that caused the debt been resolved?

retiredjg
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Re: Discovered debt

Post by retiredjg » Fri Nov 24, 2017 2:37 pm

I think she should at least have a consultation with an attorney to learn real facts. There could be some unknown quirk or wrinkle since they have never had joint finances.

Some people are just foolish and some simply cannot help themselves. For instance, if it is possible he is bi-polar, that puts a different spin on it all. She might have to get guardianship over his finances (might not be the right word, but you get the idea). I knew someone who had to do that.

chevca
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Re: Discovered debt

Post by chevca » Fri Nov 24, 2017 3:07 pm

Is there even a chance at filing bankruptcy? I don't know much about it and have never filed. But, the common sense side of me thinks that even though he created $200k in debt.... they have over a million dollars in assets. Aren't they going to look at that and go, uh, no, we don't care that you did everything separate... you are a married couple and have more than enough... you aren't bankrupt.

delamer
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Re: Discovered debt

Post by delamer » Fri Nov 24, 2017 3:25 pm

chevca wrote:
Fri Nov 24, 2017 3:07 pm
Is there even a chance at filing bankruptcy? I don't know much about it and have never filed. But, the common sense side of me thinks that even though he created $200k in debt.... they have over a million dollars in assets. Aren't they going to look at that and go, uh, no, we don't care that you did everything separate... you are a married couple and have more than enough... you aren't bankrupt.

This is why you see any attorney, to find out what your responsibilities are before you begin paying down the debt. The least of her concerns should be shelling put for the attorney's fees.

Maybe some of it is business debt rather than personal debt, for instance.
Last edited by delamer on Fri Nov 24, 2017 3:38 pm, edited 1 time in total.

chevca
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Re: Discovered debt

Post by chevca » Fri Nov 24, 2017 3:29 pm

Very true, seeing an attorney would be money well spent.

student
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Re: Discovered debt

Post by student » Fri Nov 24, 2017 3:31 pm

I don't see how bankruptcy will help as they have $300,000 assets in taxable accounts. This should cover the debt. The retirement account is safe even if they go bankrupt according to this. http://www.bankrate.com/finance/debt/40 ... uptcy.aspx

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Watty
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Re: Discovered debt

Post by Watty » Fri Nov 24, 2017 4:27 pm

Before she does anything they should also get his and her credit reports from all three credit agencies. There may be other debts that she does not know about yet or he may have gotten credit in her name.

jbjeannine
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Re: Discovered debt

Post by jbjeannine » Fri Nov 24, 2017 4:41 pm

I live in Wisconsin, also a community property state. My husband and I cannot open any credit cards or take out loans without the agreement of the other. Isn't that how community property states all work? I question how this happened. For my husband or I to do something like this we would have to lie and sign for the other without their knowledge. I'm not sure how one can stay married to someone after something like this.

aristotelian
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Re: Discovered debt

Post by aristotelian » Fri Nov 24, 2017 4:56 pm

chevca wrote:
Fri Nov 24, 2017 12:00 pm
I'd say your advice to the friend is about as good as it's gonna get. That sounds like a reasonable plan to handle taxes while paying it down.

So, she saved over a million dollars over that time and he created $200k in debt... wow, something to be said for keeping all finances together as a married couple, IMO.
Except she is still on the hook for it. Probably could have avoided the problem years earlier if they had joint credit cards or accounts. I would say this is a case in point for joint finances actually.

chevca
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Re: Discovered debt

Post by chevca » Fri Nov 24, 2017 5:33 pm

aristotelian wrote:
Fri Nov 24, 2017 4:56 pm
chevca wrote:
Fri Nov 24, 2017 12:00 pm
I'd say your advice to the friend is about as good as it's gonna get. That sounds like a reasonable plan to handle taxes while paying it down.

So, she saved over a million dollars over that time and he created $200k in debt... wow, something to be said for keeping all finances together as a married couple, IMO.
Except she is still on the hook for it. Probably could have avoided the problem years earlier if they had joint credit cards or accounts. I would say this is a case in point for joint finances actually.
Actually, that was exactly my point. :happy

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Re: Discovered debt

Post by Jack FFR1846 » Fri Nov 24, 2017 5:47 pm

His response was the typical one for him, about his ship was about to come in and soon he would be raking in the dough.
What does this mean? Does he have money "invested" in some kind of scheme? Does he have $200k in lottery tickets? Is there some property or asset used for the business that could be sold off? Did he buy a Porsche 911 GT-2 some years ago? (and if that's the case, he can simply sell it and easily cover the debt and have plenty left over to buy a few normal cars).
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2pedals
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Re: Discovered debt

Post by 2pedals » Fri Nov 24, 2017 5:48 pm

The past, it's done. It took so a shockingly long time to figure out the husband created $200k in dept. I think the plan forward is to make certain he does not create more dept and somehow pays for his bad behavior.

deltaneutral83
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Re: Discovered debt

Post by deltaneutral83 » Fri Nov 24, 2017 7:02 pm

Yea this isn't a money issue, this is a marriage hanging on by a thread issue. Hope they figure it out. $200k isn't going to derail their plans but it would derail 90% of Americans into an all out downward spiral.

Traveler
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Re: Discovered debt

Post by Traveler » Fri Nov 24, 2017 8:19 pm

Before paying down any of the debt, she needs to fully understand how the debt came to be. If it's his crazy business that has never made any money, he needs to close the business. If he's been spending freely and built up the debt (wouldn't she have seen signs of this?), then he needs to go through Dave Ramsey's program to eliminate debt. Which means he needs to find a real job that brings in income to pay the debt. I would be very irritated if this was my spouse, especially when he apparently doesn't see the problem and his attitude is simply, oh I'm on the brink of something big. Yeah, sure.

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Re: Discovered debt

Post by TravelGeek » Fri Nov 24, 2017 9:09 pm

fenyahyhi wrote:
Fri Nov 24, 2017 1:08 pm
I did recommend to her that she scour his credit report for all debts, and that she get a new free report once every four months from a different company. She doesn't believe he is a liar or cheat, just absolutely unable to add or focus on numbers. Or balance a checkbook.
But able to play a shell game with credit cards?

Freeze the credit, “burn” the pins needed to unlock the credit.

toofache32
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Re: Discovered debt

Post by toofache32 » Fri Nov 24, 2017 11:03 pm

fenyahyhi wrote:
Fri Nov 24, 2017 11:50 am
My friend has been married 25 years and keeps the finances with her husband separate, although they live in a community property state. She has been the sole support of the family all these years.

She has been enabling him unknowlingly. If she was not there, he would have faced reality long ago. This needs to get fixed first.

JBTX
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Re: Discovered debt

Post by JBTX » Fri Nov 24, 2017 11:33 pm

student wrote:
Fri Nov 24, 2017 3:31 pm
I don't see how bankruptcy will help as they have $300,000 assets in taxable accounts. This should cover the debt. The retirement account is safe even if they go bankrupt according to this. http://www.bankrate.com/finance/debt/40 ... uptcy.aspx
Move to FL. Put practically all non retirement assets into your home (which is bankruptcy protected in Fl). I think retirement assets are protected there also. Then declare bankruptcy.

I say that somewhat tongue in cheek. Don’t know if would work, but in the interest of brainstorming just tossing it out there. :twisted:

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randomizer
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Re: Discovered debt

Post by randomizer » Fri Nov 24, 2017 11:50 pm

Ugh. What a horrid situation to be in. Even if it doesn't end in divorce, I can't imagine it not irreparably damaging the relationship.
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delamer
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Re: Discovered debt

Post by delamer » Sat Nov 25, 2017 1:23 am

TravelGeek wrote:
Fri Nov 24, 2017 9:09 pm
fenyahyhi wrote:
Fri Nov 24, 2017 1:08 pm
I did recommend to her that she scour his credit report for all debts, and that she get a new free report once every four months from a different company. She doesn't believe he is a liar or cheat, just absolutely unable to add or focus on numbers. Or balance a checkbook.
But able to play a shell game with credit cards?

Freeze the credit, “burn” the pins needed to unlock the credit.

The OP did not ask for relationship advice, and that isn't this forum's role at any rate.

But that is what I can't wrap my mind around either -- he was able to obtain $200,000 (at least) in credit and play a shell game with all these cards, but his wife thinks he "just absolutely unable to add or focus on numbers. Or balance a checkbook."

She needs to take a step back and decide if that is really credible.

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Re: Discovered debt

Post by Tanelorn » Sat Nov 25, 2017 2:20 am

JBTX wrote:
Fri Nov 24, 2017 11:33 pm
student wrote:
Fri Nov 24, 2017 3:31 pm
I don't see how bankruptcy will help as they have $300,000 assets in taxable accounts. This should cover the debt. The retirement account is safe even if they go bankrupt according to this. http://www.bankrate.com/finance/debt/40 ... uptcy.aspx
Move to FL. Put practically all non retirement assets into your home (which is bankruptcy protected in Fl). I think retirement assets are protected there also. Then declare bankruptcy.

I say that somewhat tongue in cheek. Don’t know if would work, but in the interest of brainstorming just tossing it out there. :twisted:
Yeah, or put off paying the credit cards while you retire and spend down the $300k in taxable and then go for bankruptcy while preserving the retirement accounts. Even spending over $100k worth productively (living expenses, advanced payments on taxes, pay off the whole mortgage, etc) before bankruptcy would be better than just giving away $200k in taxable cash on a pure numbers basis.

I do agree that the wife needs to get the husband to "retire" from this business before she can think about retirement herself. Who's to say he won't do this again, or use his SS or IRA money to blow on his next great idea and then leave her retirement imperiled by his lack of assets? Address the cause first, and the symptoms second.

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Re: Discovered debt

Post by CyclingDuo » Sat Nov 25, 2017 4:05 am

fenyahyhi wrote:
Fri Nov 24, 2017 11:50 am
Any other financial advice I should pass on?
They could do a cash our refi of their mortgage to a 30 year fixed at 4% to pay off the CC balances, and have a lower interest rate to service going forward.
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fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Sat Nov 25, 2017 6:41 am

Asset allocation. She needs to review her asset allocation since it is now riskier than she once thought it was.

mouses
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Re: Discovered debt

Post by mouses » Sat Nov 25, 2017 7:19 am

fenyahyhi wrote:
Fri Nov 24, 2017 12:10 pm
Makes me grateful my husband and I each look at every dollar that gets spent
Makes me grateful I'm not married. I wonder if there is any way for a married couple, in a community property state or not, to keep their finances totally separate.

After having read the other responses, I think she needs to be absolutely sure she knows all his debts, and consult an attorney specializing in this area before she does anything about paying his debts.

Then she should divorce him, so that nothing he does can impact her savings later. That is the only way I see to ensure that. They can still live together (assuming this doesn't open her up to palimony.)

This must be like having a pet dog you love, but one who has access to your credit cards.

fenyahyhi
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Re: Discovered debt

Post by fenyahyhi » Sat Nov 25, 2017 8:18 am

To answer some of the questions raised: her advisors include an attorney, an accountant, a debt/credit counselor, and a therapist (both joint and solo for him). So no shortage of professional advice but not necessarily from the Boglehead perspective. One or more of those advisors told them they weren't candidates for bankruptcy, both because of the amount in the taxable account and the equity in their house. I am still hopeful of the bankruptcy route for his business if not for them personally.

I suspect the debt was racked up a little at a time. $200,000 over 25 years is $8,000 per year that he has been slipping down the hole. No Ferraris in sight. He is so completely unaware of the act of spending money: I watched him evaluate whether he should buy a new hat because his old one wasn't quite perfect. I suggested to her that he try a one-week "no spend" experiment.

Most of what was recommended here has indeed been brought up by me or one of her advisors. One thing this thread has shifted for me though is the severing of their finances now. Her advisors had told her of the option but I think she dismissed it as closing the barn door after the horse has left. She also has said to hubby that she will not get dragged down further by him. I had encouraged her to clarify for herself exactly what that would look like - set a time frame, dollar amounts. At what point will she have had enough? But this thread has made me realize she should sever their finances right now so that if he is unable to do an about-face (and change seems unlikely), she is not further in the hole financially.

Reasonable Bogleheads differ on whether someone of more mature years is better off with cash in the bank or a paid-for house and no debts. I personally lean toward the no-debt side and I see others here on the "keep the cash" side. One approach is to refinance the debt at a lower interest rate, either secured by the house or unsecured. Credit consolidation companies will consolidate, give you an 8% interest rate unsecured, and require that you cut up your credit cards. Secured by the house at 4% is cheaper, but has the downside of being secured by the house.

The other approach is essentially self-financing the loan - pay off the credit cards then require that he repay the household account with X% interest. Paying yourself interest doesn't make sense in the technical sense but it does in the emotional - it gives them a yardstick as to whether he has turned a corner and is owning up to his responsibilities as a husband and adult.

I like the idea that he should sell things he has purchased, but I suspect there aren't a handful of valuable objects that would bring a decent return.

I will recommend she revisit where they stand with their asset allocation, given that she now has a negative bond.

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3CT_Paddler
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Re: Discovered debt

Post by 3CT_Paddler » Sat Nov 25, 2017 8:55 am

I think the spouse needs a level of contriteness on his part in order to move forward together... does he own up to the significance of his poor choices? He needs to find a job working for someone else, and he needs to work that job until he pays off the debt. The wife probably needs to go ahead and pay it, but then set up an account that the husband can pay towards. Joint finances is a must.

Dottie57
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Re: Discovered debt

Post by Dottie57 » Sat Nov 25, 2017 9:19 am

mouses wrote:
Sat Nov 25, 2017 7:19 am
fenyahyhi wrote:
Fri Nov 24, 2017 12:10 pm
Makes me grateful my husband and I each look at every dollar that gets spent
Makes me grateful I'm not married. I wonder if there is any way for a married couple, in a community property state or not, to keep their finances totally separate.

After having read the other responses, I think she needs to be absolutely sure she knows all his debts, and consult an attorney specializing in this area before she does anything about paying his debts.

Then she should divorce him, so that nothing he does can impact her savings later. That is the only way I see to ensure that. They can still live together (assuming this doesn't open her up to palimony.)

This must be like having a pet dog you love, but one who has access to your credit cards.
I suspect husband would get half of her monetary assets in a divorce. Big loss on money side for wife.

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Watty
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Re: Discovered debt

Post by Watty » Sat Nov 25, 2017 9:45 am

fenyahyhi wrote:
Sat Nov 25, 2017 8:18 am
To answer some of the questions raised: her advisors include an attorney, an accountant, a debt/credit counselor, and a therapist (both joint and solo for him). So no shortage of professional advice but not necessarily from the Boglehead perspective.
If it has not been done already they might add doctors to the list. Poor financial judgement can be an early sign of dementia.

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CyclingDuo
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Re: Discovered debt

Post by CyclingDuo » Sat Nov 25, 2017 9:52 am

fenyahyhi wrote:
Sat Nov 25, 2017 8:18 am
Reasonable Bogleheads differ on whether someone of more mature years is better off with cash in the bank or a paid-for house and no debts. I personally lean toward the no-debt side and I see others here on the "keep the cash" side. One approach is to refinance the debt at a lower interest rate, either secured by the house or unsecured. Credit consolidation companies will consolidate, give you an 8% interest rate unsecured, and require that you cut up your credit cards. Secured by the house at 4% is cheaper, but has the downside of being secured by the house.
We were one of those couples making the mortgage suggestion because based on the numbers you listed, and their ages. We thought they couldn't afford to spend their cash or tap into investments to pay off the CC debt - no matter how alarming and nasty it seems at the moment for your friends.

Refinancing the mortgage to cash out to a larger loan (say 75 - 80% of the home's value) to cover the CC debt with today's low interest rate 30 year mortgages allows them to borrow very cheap money on a historical basis, take the mortgage interest rate deduction on their tax return, pay off the debt on CC's, and keep their current capital working for them to surpass the interest rate they would pay. After the mortgage interest tax deduction, it's probably what - in the 2 - 3% real rate? That's cheap money compared to what a credit consolidation company would charge. Good chance, historically speaking, that their capital working for them the next 2-3 decades in their current investments will top the interest rate they would pay on a larger mortgage, leaving them better off using this method in the long run.

Excellent article is available to read here that covers this subject:

https://www.edelmanfinancial.com/educat ... g-mortgage

They have a lot to salvage from this point going forward in their marriage, but count us on the optimistic side that with the advice they are seeking, and the availability of cheap debt (mortgage) - they could emerge rather unscathed with regard to their financial future as they piece things back together.

All the best to them.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

chevca
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Re: Discovered debt

Post by chevca » Sat Nov 25, 2017 11:02 am

fenyahyhi wrote:
Sat Nov 25, 2017 8:18 am
The other approach is essentially self-financing the loan - pay off the credit cards then require that he repay the household account with X% interest. Paying yourself interest doesn't make sense in the technical sense but it does in the emotional - it gives them a yardstick as to whether he has turned a corner and is owning up to his responsibilities as a husband and adult.
You say he is 67 years old and seems he can't find a way to make an income. What's the chances of him paying back a $200k loan with interest in his remaining lifetime?? Sounds good, but seems highly unlikely to be productive in this situation.

delamer
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Re: Discovered debt

Post by delamer » Sat Nov 25, 2017 11:56 am

mouses wrote:
Sat Nov 25, 2017 7:19 am
fenyahyhi wrote:
Fri Nov 24, 2017 12:10 pm
Makes me grateful my husband and I each look at every dollar that gets spent
Makes me grateful I'm not married. I wonder if there is any way for a married couple, in a community property state or not, to keep their finances totally separate.

After having read the other responses, I think she needs to be absolutely sure she knows all his debts, and consult an attorney specializing in this area before she does anything about paying his debts.

Then she should divorce him, so that nothing he does can impact her savings later. That is the only way I see to ensure that. They can still live together (assuming this doesn't open her up to palimony.)

This must be like having a pet dog you love, but one who has access to your credit cards.

There is a difference between keeping your finances separate from each other and keeping your finances secret from each other. I can understand the former, but that latter is a no-go. It is one thing not to have to account for every credit card purchase; it is another thing to keep credit card debt hidden.

The dog analogy is great! :D

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CAsage
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Re: Discovered debt

Post by CAsage » Sat Nov 25, 2017 12:12 pm

Amazing post. I think one of the most important "take aways" for people reading this is to realize the critical importance of running those annual credit reports (free, right?) once a year for BOTH spouses and going over them - together. If one spouse is contributing zip to the household, they are getting spending money somewhere..... Marriage is a huge financial contract, not just emotional - you are legally responsible (in general, states vary) for medical and housing and debts for each other... Community property laws giveth and taketh.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

ncbill
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Re: Discovered debt

Post by ncbill » Sat Nov 25, 2017 12:54 pm

Puzzled why people have her drawing funds from her creditor-protected accounts - those should never be touched in this situation.

And home equity would be protected under a bankruptcy filing, so the taxable monies are the ones at risk (are they needed for retirement?)

Since hubby has a hobby, not a business, either close it down or establish a budget for it that can be met within the retirement spending plan.

If no negotiated settlement with the CC companies can be reached than re-financing the home is an option to pay off the credit cards while allowing the taxable funds to remain invested.

The biggest question, though, is will hubby change his behavior?

mhalley
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Re: Discovered debt

Post by mhalley » Sat Nov 25, 2017 1:24 pm

300k in taxable accounts, 200k in cc debt. Pay off the debt, cut up his cc and freeze credit and not give him the pin if she does not want a divorce. Dissolve “business” that has never made any money. All mail is opened by and all finances controlled by wife. I would consider this to be ‘financial infidelity” so extreme measures are needed. Of course major financial and marital counseling.

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