Follow Up: Husband's Surprise Debts

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roymeo
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Re: Follow Up: Husband's Surprise Debts

Post by roymeo » Thu Dec 05, 2019 6:35 pm

stanford73 wrote:
Wed Dec 04, 2019 10:48 am
Thanks--that's very helpful. The HELOC is maxed out--$80k all withdrawn without my knowledge or approval. And, yet, I'm responsible for half that debt now.
I think you're probably responsible for all of it. Unless I misunderstand how mortgages and HELOCs are structured... You're both responsible for the whole amount. If DH dies, disappears in a foreign country, decides to just sit at home and play video games and eat twinkies, whatever, there's a lot of serious legal maneuvering to only have you pay back 'your half' and be in the clear.
The sewer system is a form of welfare state. | -- "Libra", Don DeLillo

JediMisty
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Re: Follow Up: Husband's Surprise Debts

Post by JediMisty » Thu Dec 05, 2019 6:53 pm

roymeo wrote:
Thu Dec 05, 2019 6:35 pm
stanford73 wrote:
Wed Dec 04, 2019 10:48 am
Thanks--that's very helpful. The HELOC is maxed out--$80k all withdrawn without my knowledge or approval. And, yet, I'm responsible for half that debt now.
I think you're probably responsible for all of it. Unless I misunderstand how mortgages and HELOCs are structured... You're both responsible for the whole amount. If DH dies, disappears in a foreign country, decides to just sit at home and play video games and eat twinkies, whatever, there's a lot of serious legal maneuvering to only have you pay back 'your half' and be in the clear.
+1. I want to circle back to ask about your home. Someone suggested AirBnB, but a long term rental might be a better option for staying in the house. Less risky and less work than an AirBnB. I rent to students at my nearby college. I give up some privacy, but it covers all my real estate taxes and a bit of my utilities. If you have a separate entrance, there would be less loss of privacy, but then it's harder to keep an eye on the rental. Facebook marketplace would have ads for local rentals, just to give you an idea of what you could charge. I know it's a big deal to some folks to start a rental, but it has been a good deal for me. Most of the time I lived alone while renting out spaces. So it can be done even as a amateur, although I am handy with a paintbrush and learned to interview potential renters on a summer job in my youth

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Thu Dec 05, 2019 8:44 pm

Breezy wrote:
Thu Dec 05, 2019 5:17 pm
My goodness, I feel for you. I have a few thoughts I want to share after reading through all five pages of this thread over the course of a week or so, seeing your updates and new information you've learned.

1. Your first goal should be to protect yourself financially as best you can. This would include :

A. Freezing your credit completely so that no one can apply for credit cards, etc. in your name. Ideally, your husband would freeze his, too. You know by now that you are not necessarily getting the full truth from your husband and that he's willing to go behind your back on things. Do not assume that he will change his behavior now just because you have learned some of what's been going on financially with him. He has been taking advantage of your willingness to trust him and may well continue to do so.

B. Meet the accountant, preferably one on one and without your husband. You need to get the real story from her. I can just about guarantee that your taxes aren't all that complicated. It may well be that your husband is playing fast and loose with his taxes in addition to not paying them, which seems to be reflected in this additional $7500 owed and the issue of not knowing what state taxes are still owed. What he has relayed to you has bull-- written all over it. This meeting is a fact gathering mission. In it, you should talk with her about possibly filing as married filing separately going forward, at least until the back taxes are paid, in order to protect yourself legally.

C. I'm not sure what the balances are on your retirement accounts (I think you mentioned it somewhere?), but if it was me, I would actually pay everything owed from (his) retirement accounts and clear your legal obligations this way. You can then pump money into savings without the years of stress that will otherwise be required.

D. Look into other ways to protect yourself legally.

2. It's actually really easy to know how much to set aside for quarterly tax payments. It might not be exact, but it will get you close enough if you set it up similar to how I do it. I use YNAB, and I created a "Business #1 Expenses" category. Within this category, I have it set so any business income goes to this category first. I then have listed in numerical order all expenses incurred, and I allocate money to them if they will be paid before my next income comes in. Once that is done, I move as much as possible to tax-deferred space. Once that is done, the rest is what I will owe taxes on. I take out 25% and put it in an account and submit that amount quarterly. I'm sure something similar can be done using Quicken.

3. As far as telling the kids ... I'll just say that it is a big burden to keep secrets like this. You may be feeling anger, shame, fear, lots of things, but your children love you and wouldn't want you to go through this alone. You're getting a good handle on everything, and after you have met with the accountant and know the full extent of what is owed (and maybe paid it off using retirement funds), I would absolutely let them know what happened. You could do this in a big family meeting or just you tell each individually or you and your husband communicate it together, or however. I come from a family where secrets were/are kept, and a few years ago, I refused to play that game any longer. I can tell you, the freedom that comes with being open with people and refusing to hide things is amazing. Plus, your kids can be your allies in making sure your best interests are being taken into consideration, such as when to sell the house, etc.

I'll end there. Take care of yourself!
Thanks very much for the thoughtful post, which I have taken to heart. Lots of good insights & recommendations in what you say. Appreciate it all.

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Re: Follow Up: Husband's Surprise Debts

Post by BarbBrooklyn » Thu Dec 05, 2019 8:55 pm

I'm going to tread gently into turf that I hope won't get my post deleted...

So, you and DH have VERY unequal incomes. I was in this situation for many years (me on the low side) with DH#1 and then on the high side with DH#2. My high earning MBA daughter went into her marriage knowing that she would ALWAYS out-earn her book editor DH by 3 or 4 times and they sought premarital counseling to figure out how to address this before they got married.

One of the things you might want to figure out, going forward, is how equitably to apportion responsibility for various financials BEFORE they are due so that there are no surprises. Sometimes in a marriage, we make assumptions about who is going to get the oil in the car changed, but we never talk about it; then the engine blows up and there is a lot of finger pointing. (Been there).

There has been a lot of discussion here about you taking control of finances. It feels to me as though you both need to honestly talk through the finances and make a contract about who is responsible for what.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

random_walker_77
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Re: Follow Up: Husband's Surprise Debts

Post by random_walker_77 » Thu Dec 05, 2019 10:48 pm

I've been thinking more about your situation and I think it's important to introduce two concepts for tracking your money. Let me talk about that, explain why it's important, and then throw in an idea about your mortgage.

a) In addition to tracking all money coming in and all money going out (i.e. cash flow), it's also really important to track all assets and debts (aka balance sheet). This is particularly important because the two are related, and it's good to double check that the net cash flow makes sense. For example, if you made $160K and spent $120K, then you'd expect to have a net $40K that adds to your net worth (=assets-debts). If instead, your assets shrank, and your debt increased, then you know that something is off, and that's a hint that you're missing information.
stanford73 wrote:
Thu Dec 05, 2019 1:01 am
6) Income in 2018 was $202,622; 2019 is $166,551 through Nov.

3) 2019 taxes haven't been paid; estimated at $30k & paid with cash flow by March 2020

Property taxes (about $5k) are folded into mortgage.
b) For the cash flow view, you've already presented a list of expenditures. Prepare a comprehensive list of incomes (your income, spouse's income, SS income, interest/dividends). On expenditures, include other payroll taxes (i.e. FICA). The question at hand is, "of the $166551 that came in, and the $123K in expenditures, what happened to the other 43K?" Maybe it went to FICA, to savings, or to charity, but the point is to have all of that accounted for.

c) Prepare a list of financial accounts, showing assets and liabilities. What's in savings/checking etc? What debts are owed: state/IRS/CC/HELOC etc?
c2) Find statements from January: what did you have and what did you owe in January? What do you have at the end of November? Does the change there reflect the net cash flow from b)?

Question: is this an accurate list of old debts?
Saving$ wrote:
Thu Dec 05, 2019 12:12 am
You have $160k in really bad debt:
- $52k owed to IRS
- $27k in Credit Card debt
- $81k in HELOC
Plus $30K for 2019 IRS taxes. Plus maybe $3500 for state taxes for this year? (or was that for previous years?) etc

One of the reasons why I'm concerned is that you list $27K in CC debt now, but only $2200 in CC interest, yet the interest rates were pretty high. Ballparking 15% average, the interest would imply a balance of $15K, but you see $27K in CC debt. Did the CC balance increase throughout the year? Is there more spending unaccounted for? This is why it's so important to do step c2), so that you can track changes from the beginning of the year to the end of the year, and make sure it matches up. If it doesn't then you're missing something, and that'd be good to know so that you can go look for it. Not sure if I'm being clear here, but an example would be if CC debt was constant from Jan to Dec, then you're good. But if CC debt ballooned from $10K to 27K throughout the year, then that's a strong sign to look closer at what's going on there, especially if your cash flow (income - known expenses) suggests that debts should've been going down throughout the year.

Now, on a different line of thought, regarding your mortgage, how many years are left on the term? I believe you've stated it's $309K @ 3.8%. Of the $39K paid, about 8K is for insurance and prop taxes, so you're paying 31K towards the mortgage. Interest is roughly 12K and the rest is buying you equity in the house, kind of like a forced savings. At the same time, you have a bit of a cash flow issue due to debt and tax payments. One thing you could consider is to do a cash-out refi to payoff the HELOC, consolidate high-interest CC debt, and lower your mortgage payment by stretching out the term. According to bankrate, a 30yr fixed is running 3.72% in colorado, so refinancing would allow you to consolidate all your debts at a low rate, while simultaneously dropping your required mortgage payment by nearly $1K/month.

That lower mortgage payment is mostly interest, and the main benefit here is it allows you payoff the IRS, move high-interest debt to low 3.8% rate debt, and it reduces your required mortgage payment. But to be clear, if you do this, you should plan to continue paying down aggressively. Some would argue that this is a highly risky move simply because it reduces the pressure and enables people prone to unwise financial choices to build up CC debts again, and there are definitely behavioral risks to watch out for with this move. For your situation, nearing 70 & retirement, and potentially needing to downsize the house in the next 7 years, tapping the equity and lowering the required cash flow is arguably a good thing, as long as you keep tight tabs on the finances from here on out.
Last edited by random_walker_77 on Thu Dec 05, 2019 10:49 pm, edited 1 time in total.

GreenGrowTheDollars
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Re: Follow Up: Husband's Surprise Debts

Post by GreenGrowTheDollars » Thu Dec 05, 2019 10:49 pm

1. Are all your credit cards and bank accounts set up to notify you via text of all transactions? I would set this up, pronto. We have US Bank for our checking - I suspect you might too given what you said about the HELOC. You can set up an alert for an amount exceeding $X where you get to specify the X.
2. For many services, you can suspend them for a few months without the seeming finality of canceling them. (Cable TV, Audible, ...)
3. Have you pulled a free credit report recently? I would do so. I would also ask your husband to do so. Then, I'd go over both of them just to make sure that there are no more surprises hanging out there.
4. I have my own business in Colorado. I set aside 40% of my gross income for taxes (federal @22% marginal bracket, state at 4.63% (flat rate), Social Security/Medicare at 15%.) Thinking NET income rather than GROSS income avoids a lot of trouble. I have an account for quarterly taxes. It is not perfect, but I've come a lot closer with this approach than when we did the by guess and by gosh thing.

Best of luck to you -- it is not easy, but you have a great attitude.

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Tamarind
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Re: Follow Up: Husband's Surprise Debts

Post by Tamarind » Fri Dec 06, 2019 4:31 am

random_walker_77 wrote:
Thu Dec 05, 2019 10:48 pm
According to bankrate, a 30yr fixed is running 3.72% in colorado, so refinancing would allow you to consolidate all your debts at a low rate, while simultaneously dropping your required mortgage payment by nearly $1K/month.

That lower mortgage payment is mostly interest, and the main benefit here is it allows you payoff the IRS, move high-interest debt to low 3.8% rate debt, and it reduces your required mortgage payment. But to be clear, if you do this, you should plan to continue paying down aggressively. Some would argue that this is a highly risky move simply because it reduces the pressure and enables people prone to unwise financial choices to build up CC debts again, and there are definitely behavioral risks to watch out for with this move. For your situation, nearing 70 & retirement, and potentially needing to downsize the house in the next 7 years, tapping the equity and lowering the required cash flow is arguably a good thing, as long as you keep tight tabs on the finances from here on out.
The husband's credit score is much lower than OP's - 670. They might not save as much if they can't get a mortgage at 3.7-3.8%.

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RickBoglehead
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Re: Follow Up: Husband's Surprise Debts

Post by RickBoglehead » Fri Dec 06, 2019 7:30 am

stanford73 wrote:
Thu Dec 05, 2019 12:34 pm
Oh, that's great & makes me feel more at ease. Thanks very much for the clarification. I'll pick up the Deluxe edition, which Amazon has on sale.
I'd advise a few things.

First, when you install Quicken, make sure you get the logon and password for each and every account that the two of you have. This would include every individual account that your husband has also, which means he'll need to give you the userid and password. Since it's the program logging in and pulling the data, you are not violating any company policy of using his account, because he voluntarily provided the information to you to use in your program.

Second, set a password on the Quicken program, so that it cannot be opened without the password. Don't give that password to your husband, because if he wants to see things he should be doing it with you, not by himself. Like anything, Quicken data can be deleted or altered, and you wouldn't know unless you compare it to online.

Every time an account gets a statement, use the Reconcile feature in Quicken. This has you put the ending statement date, charges, payments/credits, and ending balance (credit card example) in and then the program presents the transactions and shows you if you reconcile to zero, in other words it found transactions that matched up and your statement matches Quicken. This is a great habit to get into with all accounts.

If you spend cash more than a few dollars, reconcile that weekly. Get a receipt for each and every expenditure, toss it in a basket. Know the starting cash balance between you and your husband, add in cash withdrawals and all receipts, and you should have your ending balance. If you're off by say $3.18, enter that as "Lost money", $3.18, and reconcile to the current balance. This allows you to account for EVERYTHING, including how much money you can't track.

I've been using Quicken since 1996. Before that I used Managing Your Money, before that Lotus 1-2-3, and before that a wide ledger pad. You'll find that if you adopt this process, you'll know exactly where things stand. No lists of assets or liabilities, they're in Quicken (you can enter your house's value, and the mortgage), plus the value of your cars (and their associated loans). No wondering how Q3 this year compares to Q3 last year, it's in Quicken. In reality, you could spend days running reports, but once you're on top of things you don't need to.

One thing I do outside Quicken, is I have a spreadsheet that tracks a handful of things weekly, so I can easily see comparisons. I put in the three major indices, our total taxable assets (i.e. all bank and brokerage accounts not including retirement accounts, pulled from a saved Quicken report), and our total assets (every bank and brokeratge account in Quicken, including retirement accounts, but not including charge cards because those don't impact things until they are paid from assets), and it calculates our total retirement balance. You could add a column tracking IRS debt, and a column tracking credit card debt. Then add weekly comparisons, i.e. dollar change and percentage change from last week's number, from last month's number, and from the start of the year's number. As time goes on add a column from the start of last year, ... This allows you to easily see things like - the three indicies were up 3.4 - 4.5% from end of October to end of November, but my total assets were up 2.99% in the same period (due to cash/CDs and bonds). Do a password on this spreadsheet so it can't be opened by anyone else. This allows you to easily see your progress. I do this weekly on Saturday morning after updating Quicken.

Rather than fill this thread with Quicken ideas/process, if you have further questions on the program you can DM me.

Good luck!
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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JAZZISCOOL
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL » Fri Dec 06, 2019 10:21 am

With respect to taxes for consulting income, there is a good Wall Street Journal article today (12/6/19) regarding this topic:

"Got Freelance Income? Make These Tax Moves Now"

https://www.wsj.com/articles/got-freela ... lead_pos10

It mentions some of the suggestions from other BH's. If you are not a WSJ subscriber, you may not be able to read this online but many public libraries have the paper WSJ for free. :happy
Last edited by JAZZISCOOL on Fri Dec 06, 2019 4:32 pm, edited 1 time in total.

kelvan80
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Re: Follow Up: Husband's Surprise Debts

Post by kelvan80 » Fri Dec 06, 2019 2:42 pm

Your story is very similar to my parents and you've done great so far but yes you have a long road ahead of you. With your husband's credit score being lower I'm wondering if you have pulled a credit report on both of you yet? I'd be concerned that's there more debt that hasn't been paid for in order for a score to be that low.

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JAZZISCOOL
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL » Fri Dec 06, 2019 4:34 pm

kelvan80 wrote:
Fri Dec 06, 2019 2:42 pm
Your story is very similar to my parents and you've done great so far but yes you have a long road ahead of you. With your husband's credit score being lower I'm wondering if you have pulled a credit report on both of you yet? I'd be concerned that's there more debt that hasn't been paid for in order for a score to be that low.
In addition, you may want to pull an IRS transcript for confirmation of all back taxes and related tax data (if you haven't already). I believe you can sign up online with the IRS and get it online or via snail mail. :happy

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 4:44 pm

BarbBrooklyn wrote:
Thu Dec 05, 2019 8:55 pm
I'm going to tread gently into turf that I hope won't get my post deleted...

So, you and DH have VERY unequal incomes. I was in this situation for many years (me on the low side) with DH#1 and then on the high side with DH#2. My high earning MBA daughter went into her marriage knowing that she would ALWAYS out-earn her book editor DH by 3 or 4 times and they sought premarital counseling to figure out how to address this before they got married.

One of the things you might want to figure out, going forward, is how equitably to apportion responsibility for various financials BEFORE they are due so that there are no surprises. Sometimes in a marriage, we make assumptions about who is going to get the oil in the car changed, but we never talk about it; then the engine blows up and there is a lot of finger pointing. (Been there).

There has been a lot of discussion here about you taking control of finances. It feels to me as though you both need to honestly talk through the finances and make a contract about who is responsible for what.
I totally agree that we need to both be responsible for the finances going forward. But, I want to clarify that DH and I made the same six-figure salaries while working for Fortune 100 corporations. When I switched to academia, I made less, but it's only been in the last 7 years that DH's income has been $150k+ and mine switched back to consulting work.

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 4:45 pm

Tamarind wrote:
Fri Dec 06, 2019 4:31 am
random_walker_77 wrote:
Thu Dec 05, 2019 10:48 pm
According to bankrate, a 30yr fixed is running 3.72% in colorado, so refinancing would allow you to consolidate all your debts at a low rate, while simultaneously dropping your required mortgage payment by nearly $1K/month.

That lower mortgage payment is mostly interest, and the main benefit here is it allows you payoff the IRS, move high-interest debt to low 3.8% rate debt, and it reduces your required mortgage payment. But to be clear, if you do this, you should plan to continue paying down aggressively. Some would argue that this is a highly risky move simply because it reduces the pressure and enables people prone to unwise financial choices to build up CC debts again, and there are definitely behavioral risks to watch out for with this move. For your situation, nearing 70 & retirement, and potentially needing to downsize the house in the next 7 years, tapping the equity and lowering the required cash flow is arguably a good thing, as long as you keep tight tabs on the finances from here on out.
The husband's credit score is much lower than OP's - 670. They might not save as much if they can't get a mortgage at 3.7-3.8%.
DH checked his score today and it's 720.

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 5:07 pm

random_walker_77 wrote:
Thu Dec 05, 2019 10:48 pm
I've been thinking more about your situation and I think it's important to introduce two concepts for tracking your money. Let me talk about that, explain why it's important, and then throw in an idea about your mortgage.

a) In addition to tracking all money coming in and all money going out (i.e. cash flow), it's also really important to track all assets and debts (aka balance sheet). This is particularly important because the two are related, and it's good to double check that the net cash flow makes sense. For example, if you made $160K and spent $120K, then you'd expect to have a net $40K that adds to your net worth (=assets-debts). If instead, your assets shrank, and your debt increased, then you know that something is off, and that's a hint that you're missing information.
stanford73 wrote:
Thu Dec 05, 2019 1:01 am
6) Income in 2018 was $202,622; 2019 is $166,551 through Nov.

3) 2019 taxes haven't been paid; estimated at $30k & paid with cash flow by March 2020

Property taxes (about $5k) are folded into mortgage.
b) For the cash flow view, you've already presented a list of expenditures. Prepare a comprehensive list of incomes (your income, spouse's income, SS income, interest/dividends). On expenditures, include other payroll taxes (i.e. FICA). The question at hand is, "of the $166551 that came in, and the $123K in expenditures, what happened to the other 43K?" Maybe it went to FICA, to savings, or to charity, but the point is to have all of that accounted for.

c) Prepare a list of financial accounts, showing assets and liabilities. What's in savings/checking etc? What debts are owed: state/IRS/CC/HELOC etc?
c2) Find statements from January: what did you have and what did you owe in January? What do you have at the end of November? Does the change there reflect the net cash flow from b)?

Question: is this an accurate list of old debts?
Saving$ wrote:
Thu Dec 05, 2019 12:12 am
You have $160k in really bad debt:
- $52k owed to IRS
- $27k in Credit Card debt
- $81k in HELOC
Plus $30K for 2019 IRS taxes. Plus maybe $3500 for state taxes for this year? (or was that for previous years?) etc

One of the reasons why I'm concerned is that you list $27K in CC debt now, but only $2200 in CC interest, yet the interest rates were pretty high. Ballparking 15% average, the interest would imply a balance of $15K, but you see $27K in CC debt. Did the CC balance increase throughout the year? Is there more spending unaccounted for? This is why it's so important to do step c2), so that you can track changes from the beginning of the year to the end of the year, and make sure it matches up. If it doesn't then you're missing something, and that'd be good to know so that you can go look for it. Not sure if I'm being clear here, but an example would be if CC debt was constant from Jan to Dec, then you're good. But if CC debt ballooned from $10K to 27K throughout the year, then that's a strong sign to look closer at what's going on there, especially if your cash flow (income - known expenses) suggests that debts should've been going down throughout the year.

Now, on a different line of thought, regarding your mortgage, how many years are left on the term? I believe you've stated it's $309K @ 3.8%. Of the $39K paid, about 8K is for insurance and prop taxes, so you're paying 31K towards the mortgage. Interest is roughly 12K and the rest is buying you equity in the house, kind of like a forced savings. At the same time, you have a bit of a cash flow issue due to debt and tax payments. One thing you could consider is to do a cash-out refi to payoff the HELOC, consolidate high-interest CC debt, and lower your mortgage payment by stretching out the term. According to bankrate, a 30yr fixed is running 3.72% in colorado, so refinancing would allow you to consolidate all your debts at a low rate, while simultaneously dropping your required mortgage payment by nearly $1K/month.

That lower mortgage payment is mostly interest, and the main benefit here is it allows you payoff the IRS, move high-interest debt to low 3.8% rate debt, and it reduces your required mortgage payment. But to be clear, if you do this, you should plan to continue paying down aggressively. Some would argue that this is a highly risky move simply because it reduces the pressure and enables people prone to unwise financial choices to build up CC debts again, and there are definitely behavioral risks to watch out for with this move. For your situation, nearing 70 & retirement, and potentially needing to downsize the house in the next 7 years, tapping the equity and lowering the required cash flow is arguably a good thing, as long as you keep tight tabs on the finances from here on out.
Thank you for the thoughtful info, recommendations & support. I cannot tell you how much I appreciate the time spent on helping me figure out the best strategy forward. I have been sharing all this info with DH & he' seems receptive.

I hear you loud & clear on point A above and it's something I wouldn't have realized. That we currently have $40k unaccounted for is troubling. DH is re-checking all the figures on the latest breakdown to figure out what has been missed. Once I'm up & running on Quicken, these mysteries should disappear and I'll know exactly what is going in & out of accounts.

Doing a refi is an interesting (maybe brilliant) option and would give us much-needed breathing room, provided that the HELOC is closed, CCs are no longer used, and the IRS is paid quarterly. I'd want to pay down the mortgage aggressively at that point. I just wonder if the mortgage payment would be that much lower, since the balance would be higher? And, DH's FICO (checked today) is 720, so that's better than what I thought. I realize they consider the lower of our two scores on the loan app to assign the percentage rate.

THANK YOU very much for all the analysis--this is so very helpful and I'm feeling some light at the end of the tunnel with the suggestions you've made.
Last edited by stanford73 on Fri Dec 06, 2019 5:16 pm, edited 1 time in total.

Topic Author
stanford73
Posts: 129
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 5:10 pm

RickBoglehead wrote:
Fri Dec 06, 2019 7:30 am
stanford73 wrote:
Thu Dec 05, 2019 12:34 pm
Oh, that's great & makes me feel more at ease. Thanks very much for the clarification. I'll pick up the Deluxe edition, which Amazon has on sale.
I'd advise a few things.

First, when you install Quicken, make sure you get the logon and password for each and every account that the two of you have. This would include every individual account that your husband has also, which means he'll need to give you the userid and password. Since it's the program logging in and pulling the data, you are not violating any company policy of using his account, because he voluntarily provided the information to you to use in your program.

Second, set a password on the Quicken program, so that it cannot be opened without the password. Don't give that password to your husband, because if he wants to see things he should be doing it with you, not by himself. Like anything, Quicken data can be deleted or altered, and you wouldn't know unless you compare it to online.

Every time an account gets a statement, use the Reconcile feature in Quicken. This has you put the ending statement date, charges, payments/credits, and ending balance (credit card example) in and then the program presents the transactions and shows you if you reconcile to zero, in other words it found transactions that matched up and your statement matches Quicken. This is a great habit to get into with all accounts.

If you spend cash more than a few dollars, reconcile that weekly. Get a receipt for each and every expenditure, toss it in a basket. Know the starting cash balance between you and your husband, add in cash withdrawals and all receipts, and you should have your ending balance. If you're off by say $3.18, enter that as "Lost money", $3.18, and reconcile to the current balance. This allows you to account for EVERYTHING, including how much money you can't track.

I've been using Quicken since 1996. Before that I used Managing Your Money, before that Lotus 1-2-3, and before that a wide ledger pad. You'll find that if you adopt this process, you'll know exactly where things stand. No lists of assets or liabilities, they're in Quicken (you can enter your house's value, and the mortgage), plus the value of your cars (and their associated loans). No wondering how Q3 this year compares to Q3 last year, it's in Quicken. In reality, you could spend days running reports, but once you're on top of things you don't need to.

One thing I do outside Quicken, is I have a spreadsheet that tracks a handful of things weekly, so I can easily see comparisons. I put in the three major indices, our total taxable assets (i.e. all bank and brokerage accounts not including retirement accounts, pulled from a saved Quicken report), and our total assets (every bank and brokeratge account in Quicken, including retirement accounts, but not including charge cards because those don't impact things until they are paid from assets), and it calculates our total retirement balance. You could add a column tracking IRS debt, and a column tracking credit card debt. Then add weekly comparisons, i.e. dollar change and percentage change from last week's number, from last month's number, and from the start of the year's number. As time goes on add a column from the start of last year, ... This allows you to easily see things like - the three indicies were up 3.4 - 4.5% from end of October to end of November, but my total assets were up 2.99% in the same period (due to cash/CDs and bonds). Do a password on this spreadsheet so it can't be opened by anyone else. This allows you to easily see your progress. I do this weekly on Saturday morning after updating Quicken.

Rather than fill this thread with Quicken ideas/process, if you have further questions on the program you can DM me.

Good luck!
Thank you very much! I'm so grateful for all the help. I downloaded Quicken yesterday, and over the weekend, I will start figuring it out. Your notes above will help me get up to speed quicker. As of today, I now have all DH's account info with login info. I also appreciate your offer to help me further if I have questions and DM you. I may take you up on that, if I run into trouble.

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stanford73
Posts: 129
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 5:23 pm

JAZZISCOOL wrote:
Fri Dec 06, 2019 4:34 pm
kelvan80 wrote:
Fri Dec 06, 2019 2:42 pm
Your story is very similar to my parents and you've done great so far but yes you have a long road ahead of you. With your husband's credit score being lower I'm wondering if you have pulled a credit report on both of you yet? I'd be concerned that's there more debt that hasn't been paid for in order for a score to be that low.
In addition, you may want to pull an IRS transcript for confirmation of all back taxes and related tax data (if you haven't already). I believe you can sign up online with the IRS and get it online or via snail mail. :happy
Thanks--I have all the IRS statements. And, TY for the WSJ link--they had a 2 month subscription for $1 promotion, so lucky day ;)

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JAZZISCOOL
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL » Fri Dec 06, 2019 5:31 pm

stanford73 wrote:
Fri Dec 06, 2019 5:23 pm
JAZZISCOOL wrote:
Fri Dec 06, 2019 4:34 pm
kelvan80 wrote:
Fri Dec 06, 2019 2:42 pm
Your story is very similar to my parents and you've done great so far but yes you have a long road ahead of you. With your husband's credit score being lower I'm wondering if you have pulled a credit report on both of you yet? I'd be concerned that's there more debt that hasn't been paid for in order for a score to be that low.
In addition, you may want to pull an IRS transcript for confirmation of all back taxes and related tax data (if you haven't already). I believe you can sign up online with the IRS and get it online or via snail mail. :happy
Thanks--I have all the IRS statements. And, TY for the WSJ link--they had a 2 month subscription for $1 promotion, so lucky day ;)
Glad you have all the IRS statements. I didn't know about the IRS transcripts until somewhat recently when my CPA mentioned they were available for an issue I was researching.

Yay on the WSJ bargain! It's the little things in life, I think! :happy

Just FYI on the WSJ trial though, make sure you cancel it before the trial is up; otherwise they may charge you a much higher rate on your credit card the following month.

If you have a Capital One CC, there is something called ENO (one-vendor virtual CC #) that another BH recommended for this purpose (renewals, etc.). I'm not sure what other CC's have virtual numbers right now, but I have used ENO and it was helpful. :wink:

SheReadsHere719
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Re: Follow Up: Husband's Surprise Debts

Post by SheReadsHere719 » Fri Dec 06, 2019 5:59 pm

Keep in mind, if you don't get this mess straightened out, if your DH continues to find ways to defer taxes and add to debts ... eventually you will lose the house, either through necessary downsizing or the much harder way. And eventually you (you and/or DH depending on who lives longer, etc) may be relying on your kids for financial and physical support - paying your rent, changing your adult diapers because a nursing home isn't affordable, or helping you find the least bad medicaid nursing home in your area ... Sorry (once again!) to be so blunt. Once again, I'm trying to help, and you seem in need of and receptive to some blunt help.

When you think about being nice to your kids, think about securing your present and future financially as a huge piece of that. Taking them out to fancy dinners while the debt grows (or even while the debt doesn't shrink) is NOT being nice to your kids. Neither is keeping them in the dark about what you are going through.
I cannot +1 this enough. Keeping your children in the dark – in your precarious situation – is a surefire way to leave them with an unpleasant surprise in the event something goes awry. It is much better for them to be in the loop now instead of paying your bills and supporting you later. Furthermore, it sounds as though your children are very financially responsible (nice job!) and could help present a united front with you if these topics come up with DH.
3. As far as telling the kids ... I'll just say that it is a big burden to keep secrets like this. You may be feeling anger, shame, fear, lots of things, but your children love you and wouldn't want you to go through this alone. You're getting a good handle on everything, and after you have met with the accountant and know the full extent of what is owed (and maybe paid it off using retirement funds), I would absolutely let them know what happened. You could do this in a big family meeting or just you tell each individually or you and your husband communicate it together, or however. I come from a family where secrets were/are kept, and a few years ago, I refused to play that game any longer. I can tell you, the freedom that comes with being open with people and refusing to hide things is amazing. Plus, your kids can be your allies in making sure your best interests are being taken into consideration, such as when to sell the house, etc.
+100!

Wishing you all the best OP, please keep this thread updated as you have a lot of people rooting for you!

Topic Author
stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 8:06 pm

JAZZISCOOL wrote:
Fri Dec 06, 2019 5:31 pm
stanford73 wrote:
Fri Dec 06, 2019 5:23 pm
JAZZISCOOL wrote:
Fri Dec 06, 2019 4:34 pm
kelvan80 wrote:
Fri Dec 06, 2019 2:42 pm
Your story is very similar to my parents and you've done great so far but yes you have a long road ahead of you. With your husband's credit score being lower I'm wondering if you have pulled a credit report on both of you yet? I'd be concerned that's there more debt that hasn't been paid for in order for a score to be that low.
In addition, you may want to pull an IRS transcript for confirmation of all back taxes and related tax data (if you haven't already). I believe you can sign up online with the IRS and get it online or via snail mail. :happy
Thanks--I have all the IRS statements. And, TY for the WSJ link--they had a 2 month subscription for $1 promotion, so lucky day ;)
Glad you have all the IRS statements. I didn't know about the IRS transcripts until somewhat recently when my CPA mentioned they were available for an issue I was researching.

Yay on the WSJ bargain! It's the little things in life, I think! :happy

Just FYI on the WSJ trial though, make sure you cancel it before the trial is up; otherwise they may charge you a much higher rate on your credit card the following month.

If you have a Capital One CC, there is something called ENO (one-vendor virtual CC #) that another BH recommended for this purpose (renewals, etc.). I'm not sure what other CC's have virtual numbers right now, but I have used ENO and it was helpful. :wink:
I guess I don't know about the IRS transcripts. What are they & how do I access them?

Oh, I know about that subscription trap! But, thanks for the reminder. I can cancel the WSJ subscription at any time,and since I used Paypal, it's easily done ;)

And, I do have a Capital One CC. I'll need to check into the ENO. Thanks!
Last edited by stanford73 on Fri Dec 06, 2019 8:31 pm, edited 1 time in total.

Topic Author
stanford73
Posts: 129
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Fri Dec 06, 2019 8:23 pm

SheReadsHere719 wrote:
Fri Dec 06, 2019 5:59 pm
Keep in mind, if you don't get this mess straightened out, if your DH continues to find ways to defer taxes and add to debts ... eventually you will lose the house, either through necessary downsizing or the much harder way. And eventually you (you and/or DH depending on who lives longer, etc) may be relying on your kids for financial and physical support - paying your rent, changing your adult diapers because a nursing home isn't affordable, or helping you find the least bad medicaid nursing home in your area ... Sorry (once again!) to be so blunt. Once again, I'm trying to help, and you seem in need of and receptive to some blunt help.

When you think about being nice to your kids, think about securing your present and future financially as a huge piece of that. Taking them out to fancy dinners while the debt grows (or even while the debt doesn't shrink) is NOT being nice to your kids. Neither is keeping them in the dark about what you are going through.
I cannot +1 this enough. Keeping your children in the dark – in your precarious situation – is a surefire way to leave them with an unpleasant surprise in the event something goes awry. It is much better for them to be in the loop now instead of paying your bills and supporting you later. Furthermore, it sounds as though your children are very financially responsible (nice job!) and could help present a united front with you if these topics come up with DH.
3. As far as telling the kids ... I'll just say that it is a big burden to keep secrets like this. You may be feeling anger, shame, fear, lots of things, but your children love you and wouldn't want you to go through this alone. You're getting a good handle on everything, and after you have met with the accountant and know the full extent of what is owed (and maybe paid it off using retirement funds), I would absolutely let them know what happened. You could do this in a big family meeting or just you tell each individually or you and your husband communicate it together, or however. I come from a family where secrets were/are kept, and a few years ago, I refused to play that game any longer. I can tell you, the freedom that comes with being open with people and refusing to hide things is amazing. Plus, your kids can be your allies in making sure your best interests are being taken into consideration, such as when to sell the house, etc.
+100!

Wishing you all the best OP, please keep this thread updated as you have a lot of people rooting for you!
Thank you for the kind words. I've gotten a tremendous amount of great advice and support here and it is life changing. No exaggeration! I just wish I had found this BH community years ago. People are truly wonderful and so generous and I hope in some way my circumstances can help others who read this thread in the future.

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JAZZISCOOL
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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL » Fri Dec 06, 2019 9:50 pm

"Re: Follow Up: Husband's Surprise Debts
Post by stanford73 » Fri Dec 06, 2019 6:06 pm
I guess I don't know about the IRS transcripts. What are they & how do I access them?"


Per the IRS, there are various types of tax transcripts (which are not copies of your tax returns). In your situation, I just thought it might be a good way for you to confirm the information you have from DH and/or accountant (given it is complex). In my situation, they helped confirm some income information but I was missing a form from someone so I was able to track it down. You may or may not need it. I guess if it were me, I would be a bit forensic and want to confirm certain information. :|

https://www.irs.gov/individuals/tax-ret ... order-them

Transcript Types

We offer the following transcript types at no charge to you:
• Tax Return Transcript - shows most line items including your adjusted gross income (AGI) from your original tax return (Form 1040, 1040A or 1040EZ) as filed, along with any forms and schedules. It doesn’t show changes made after you filed your original return. This transcript is only available for the current tax year and returns processed during the prior three years. A tax return transcript usually meets the needs of lending institutions offering mortgages and student loans. Note: the secondary spouse on a joint return must use Get Transcript Online or Form 4506-T to request this transcript type. When using Get Transcript by Mail or phone, the primary taxpayer on the return must make the request.
• Tax Account Transcript - shows basic data such as return type, marital status, adjusted gross income, taxable income and all payment types. It also shows changes made after you filed your original return. This transcript is available for the current tax year and up to 10 prior years using Get Transcript Online or Form 4506-T. When using Get Transcript by Mail or phone, you’re limited to the current tax year and returns processed during the prior three years. Note: If you made estimated tax payments and/or applied an overpayment from a prior year return, you can request this transcript type a few weeks after the beginning of the calendar year to confirm your payments prior to filing your tax return.
• Record of Account Transcript - combines the tax return and tax account transcripts above into one complete transcript. This transcript is available for the current tax year and returns processed during the prior three years using Get Transcript Online or Form 4506-T.
• Wage and Income Transcript - shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Current tax year information may not be complete until July. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.
• Verification of Non-filing Letter - provides proof that the IRS has no record of a filed Form 1040, 1040A or 1040EZ for the year you requested. It doesn't indicate whether you were required to file a return for that year. This letter is available after June 15 for the current tax year or anytime for the prior three tax years using Get Transcript Online or Form 4506-T. You must use Form 4506-T if you need a letter for tax years older than the prior three years.

random_walker_77
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Re: Follow Up: Husband's Surprise Debts

Post by random_walker_77 » Fri Dec 06, 2019 10:35 pm

stanford73 wrote:
Fri Dec 06, 2019 5:07 pm
I just wonder if the mortgage payment would be that much lower, since the balance would be higher? And, DH's FICO (checked today) is 720, so that's better than what I thought. I realize they consider the lower of our two scores on the loan app to assign the percentage rate.

THANK YOU very much for all the analysis--this is so very helpful and I'm feeling some light at the end of the tunnel with the suggestions you've made.
You're welcome, and I must say I'm impressed with how well you're handling this. Very few in this situation would have the stomach to roll up their sleeves and dive into tackling this as you have. You have my very best wishes.

Regarding mortgages, consider that the defining characteristic is a constant payment. Over. 30. Years.

As you well know, a lot changes over 30 years. Even the value of a dollar changes appreciably over that timespan. But with a mortgage, the payment is fixed for 3 solid decades. So how does that work? They give you the money upfront, and you pay them enough interest to cover inflation and give them a sufficiently healthy return. You do pay down the balance over those 30 years, but fundamentally, what's going on is that in year 1, most of your payment is for interest, and a little goes towards paying down the balance. As the years go by, the interest drops (b/c you owe less) and more of your payment goes towards the principal. By the end, you owe very little interest and almost all of your payment is towards the principal.

I just googled a mortgage calculator and see that for a 30 yr, the first year's payments tend to be about 70% interest.
[how I figure it: The est payment on 100K at 4% is 477/month. Times 12 months, so that's $5724/yr, and interest is about $4000 (4% of 100K)]

On your mortgage you were down to 12K interest on 31K in payments, so you were well along towards the mortgage's progression. I'm too lazy to do the math or look it up, but you probably had 12-15 yrs left on the mortgage, I'm guesstimating.

By refinancing, you stretch out the term, which reduces the required payment. Your required payment resets to year 1, which is mostly interest, so the required amount is dictated by interest***.

Plugging in 450K and 3.8% to the mortgage calculator, it's estimating a monthly payment of $2100. Add on the 8K of property tax/insurance, and you're looking at a monthly mortgage payment of $2800. Increase the mortgage to 470K and 4.0%, and it goes up another $150/month, so $2950/month. So, yes, I do believe this would substantially help your cash flow, subject to the other caveats I'd previously discussed.

As mentioned by others, please do make sure you get your credit reports. They're free at https://www.annualcreditreport.com/
If you only get one now, I've heard to go for Experian, or you can get all 3 now. If you only get one, you can get another from one of the other bureaus in 4 months and 8 months

***this heavy correlation between monthly mortgage payments (aka affordability) and interest rates, is why some are worried about what'd happen if inflation kicked up and mortgage interest rates ever went up to, god forbid, 6% or an unthinkable 9%.

clip651
Posts: 496
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Re: Follow Up: Husband's Surprise Debts

Post by clip651 » Fri Dec 06, 2019 11:15 pm

stanford73 wrote:
Fri Dec 06, 2019 5:07 pm

Doing a refi is an interesting (maybe brilliant) option and would give us much-needed breathing room, provided that the HELOC is closed, CCs are no longer used, and the IRS is paid quarterly. I'd want to pay down the mortgage aggressively at that point. I just wonder if the mortgage payment would be that much lower, since the balance would be higher? And, DH's FICO (checked today) is 720, so that's better than what I thought. I realize they consider the lower of our two scores on the loan app to assign the percentage rate.
The refi may be worth looking into ... but keep in mind again the difference between secured and unsecured debt. It's similar to the earlier idea of putting more stuff onto the HELOC (which I think you later said is already maxed out).

Think long and hard before you turn unsecured debt (e.g. the credit cards) into secured debt. It may be your best option, I really don't know ... but make sure you understand all the possible downsides before you do it. You get behind on the credit cards, there is extra interest, penalties, etc, and the credit card companies get grumpy with you. You get behind on your new, bigger mortgage payment ... there is the possibility of a foreclosure at some point.

Also consider the psychology ... one consolidated debt maybe doesn't look quite so bad to your DH. It's more manageable, after all. Payment is lower than all those other pesky payments he couldn't keep up with. What's to stop him taking out new debt? A new credit card, or charging stuff to the old ones? A car loan, or a new payment plan with the IRS the next time he gets behind, etc? His mind needs to be focused on increasing income, cutting expenses, and being transparent. It's not clear to me whether consolidation helps or hurts that focus for him (or you).

I'm not necessarily saying don't do it ... you have to run the detailed numbers and see what you need to do to make progress on your overall situation. Just be sure before you jump into redoing your mortgage, and making it bigger.

best wishes,
cj

brajalle
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Re: Follow Up: Husband's Surprise Debts

Post by brajalle » Sat Dec 07, 2019 5:48 am

kelvan80 wrote:
Fri Dec 06, 2019 2:42 pm
Your story is very similar to my parents and you've done great so far but yes you have a long road ahead of you. With your husband's credit score being lower I'm wondering if you have pulled a credit report on both of you yet? I'd be concerned that's there more debt that hasn't been paid for in order for a score to be that low.
Even if almost everything else in a credit score is ok, if you start using very high %'s of your unsecured credit limits your credit score very well could tank down to around that. Definitely could be missed payments, unpaid debt, or things he's not told the OP about though - so should definitely check these out. You can pay a reasonable amount on MyFico to pull all 3 (they frequently have coupons) to verify and then use the free annual ones, staggered every 4 months, to monitor.

Herekittykitty
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Re: Follow Up: Husband's Surprise Debts

Post by Herekittykitty » Sat Dec 07, 2019 6:44 am

IMHO refinancing a house to pay off consumer and other debt is a scary way to increase cash flow. It transfers unsecured debt into secured debt, places the home at risk, resets the mortgage so that less of the payment goes toward paying it and more toward interest, extends the years of indebtedness on the house, and sets the people doing it up for continuing the cycle that got them into the fix in the first place.

The non-scary (well, maybe potentially temporarily anxiety producing but ultimately anxiety reducing) way to increase cash flow is to budget well, and increase income and/or decrease outgo. This is can be powerful.

The first (refinancing a house to pay consumer and other debt) doesn't fix the problem, it prolongs it while increasing risk. The second (budgeting, increasing income, and reducing outgo) can solve the problem.
I don't know anything.

random_walker_77
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Re: Follow Up: Husband's Surprise Debts

Post by random_walker_77 » Sat Dec 07, 2019 9:31 am

Herekittykitty wrote:
Sat Dec 07, 2019 6:44 am
IMHO refinancing a house to pay off consumer and other debt is a scary way to increase cash flow. It transfers unsecured debt into secured debt, places the home at risk, resets the mortgage so that less of the payment goes toward paying it and more toward interest, extends the years of indebtedness on the house, and sets the people doing it up for continuing the cycle that got them into the fix in the first place.

The non-scary (well, maybe potentially temporarily anxiety producing but ultimately anxiety reducing) way to increase cash flow is to budget well, and increase income and/or decrease outgo. This is can be powerful.

The first (refinancing a house to pay consumer and other debt) doesn't fix the problem, it prolongs it while increasing risk. The second (budgeting, increasing income, and reducing outgo) can solve the problem.
I completely agree with everything you've said. And for 95% of people, a cash-out refinance would be a truly terrible idea. I think OP is an exception.

1) OP's situation arguably involves a change in financial management from an incompetent/irresponsible financial manager to an inexperienced-but-rational manager

2) Most of the debt is effectively already secured. Of the 160K, only 22K is credit card debt. The rest is a HELOC that supposedly went to paying the IRS, or it is IRS debt.

3) The OP will never own this house free-and-clear; they're just renting it from the bank. Don't forget that they're almost 70, and they're going to need to downsize within a decade, if not from financial circumstances, then potentially from lifestyle circumstances. This is a harsh way of looking at it, but one could argue that they already retired 5 years ago, but chose to keep working and to spend from their retirement fund (i.e. home equity) in order to continue enjoying this house. It's quite an example of being "house-poor" but spending priorities are highly personal and perhaps it truly is worth it to them. It seems that they could reasonably "rent" the house for several more years, but after that, failure to sell the house could be catastrophic to their finances for the remainder of their retirement.

4) Their current mortgage payment is mostly "savings" towards home equity, and home equity already accounts for most of their net worth. Does it make more sense to first payoff the 3.8% mortgage, or to pay off the toxic debts: IRS back-taxes, and high-rate CC debt? The mortgage payment forces their cash flow towards the mortgage. Another option is to refi just the mortgage, or refi the mortgage taking cash out to payoff the HELOC and IRS debts. The latter just means not pulling out the 22K for CC debt. The former drops their mortgage payment to $1500/mo + the 8K/yr in insurance/property tax.

5) "and sets the people doing it up for continuing the cycle that got them into the fix in the first place"
This is by far the biggest risk for anyone making this move. It gives people a lot more rope to hang themselves with.

BarbBrooklyn
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Re: Follow Up: Husband's Surprise Debts

Post by BarbBrooklyn » Sat Dec 07, 2019 9:57 am

The problem that I see with doing a cash-out refinance is that it is far from clear to me that the OP actually holds the financial reins.

What is to prevent DH from accumulating more debt without her knowledge?
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

bungalow10
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Re: Follow Up: Husband's Surprise Debts

Post by bungalow10 » Sat Dec 07, 2019 10:34 am

What is stopping your husband from taking out a new credit card or line of credit without your knowledge and doing this again?
An elephant for a dime is only a good deal if you need an elephant and have a dime.

delamer
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Re: Follow Up: Husband's Surprise Debts

Post by delamer » Sat Dec 07, 2019 10:50 am

bungalow10 wrote:
Sat Dec 07, 2019 10:34 am
What is stopping your husband from taking out a new credit card or line of credit without your knowledge and doing this again?
If his credit is frozen and only she has the PINs to unfreeze it, that would be highly effective.

rterickson
Posts: 215
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Re: Follow Up: Husband's Surprise Debts

Post by rterickson » Sat Dec 07, 2019 1:06 pm

JAZZISCOOL wrote:
Fri Dec 06, 2019 5:31 pm

If you have a Capital One CC, there is something called ENO (one-vendor virtual CC #) that another BH recommended for this purpose (renewals, etc.). I'm not sure what other CC's have virtual numbers right now, but I have used ENO and it was helpful. :wink:
Citi has a similar feature called Virtual Account Numbers on all of their cards. You can set up a virtual number as one-time, recurring, time-limited, etc.

Topic Author
stanford73
Posts: 129
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sat Dec 07, 2019 1:10 pm

random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
Herekittykitty wrote:
Sat Dec 07, 2019 6:44 am
IMHO refinancing a house to pay off consumer and other debt is a scary way to increase cash flow. It transfers unsecured debt into secured debt, places the home at risk, resets the mortgage so that less of the payment goes toward paying it and more toward interest, extends the years of indebtedness on the house, and sets the people doing it up for continuing the cycle that got them into the fix in the first place.

The non-scary (well, maybe potentially temporarily anxiety producing but ultimately anxiety reducing) way to increase cash flow is to budget well, and increase income and/or decrease outgo. This is can be powerful.

The first (refinancing a house to pay consumer and other debt) doesn't fix the problem, it prolongs it while increasing risk. The second (budgeting, increasing income, and reducing outgo) can solve the problem.
I completely agree with everything you've said. And for 95% of people, a cash-out refinance would be a truly terrible idea. I think OP is an exception.

1) OP's situation arguably involves a change in financial management from an incompetent/irresponsible financial manager to an inexperienced-but-rational manager

2) Most of the debt is effectively already secured. Of the 160K, only 22K is credit card debt. The rest is a HELOC that supposedly went to paying the IRS, or it is IRS debt.
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
3) The OP will never own this house free-and-clear; they're just renting it from the bank. Don't forget that they're almost 70, and they're going to need to downsize within a decade, if not from financial circumstances, then potentially from lifestyle circumstances. This is a harsh way of looking at it, but one could argue that they already retired 5 years ago, but chose to keep working and to spend from their retirement fund (i.e. home equity) in order to continue enjoying this house. It's quite an example of being "house-poor" but spending priorities are highly personal and perhaps it truly is worth it to them. It seems that they could reasonably "rent" the house for several more years, but after that, failure to sell the house could be catastrophic to their finances for the remainder of their retirement.
That's an interesting way to position it--that we are renting the house from the bank. So true. My concern is not being able to pay that "rent" should DH's income become more variable or uncertain. And, of course, being forced to sell the house in a recession or worse. I'm realizing more and more that keeping the house is a luxury and a risk.
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
4) Their current mortgage payment is mostly "savings" towards home equity, and home equity already accounts for most of their net worth. Does it make more sense to first payoff the 3.8% mortgage, or to pay off the toxic debts: IRS back-taxes, and high-rate CC debt? The mortgage payment forces their cash flow towards the mortgage. Another option is to refi just the mortgage, or refi the mortgage taking cash out to payoff the HELOC and IRS debts. The latter just means not pulling out the 22K for CC debt. The former drops their mortgage payment to $1500/mo + the 8K/yr in insurance/property tax.
I'm not seeing how the mortgage payment would drop to $1500 after we increase the balance owed?
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
5) "and sets the people doing it up for continuing the cycle that got them into the fix in the first place"
This is by far the biggest risk for anyone making this move. It gives people a lot more rope to hang themselves with.
And, we've been there, done that. In past years, DH would refi during extended periods of unemployment. Twice in 25 years. Had we not done that, we'd be within 5 years of a paid off mortgage. We are on a much shorter runway now and mistakes are costly. DH's income varies dramatically, too. I really want to be clear-eyed about which path to take: (1) downsize; (2) pay off bills/reduce debt, or (3) refi.

With DH's varying income, how do I estimate how long it will take to payoff the CC debt, IRS & HELOC?
Last edited by stanford73 on Sat Dec 07, 2019 8:51 pm, edited 1 time in total.

greetje
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Re: Follow Up: Husband's Surprise Debts

Post by greetje » Sat Dec 07, 2019 1:13 pm

Tamarind wrote: ↑
December 6th, 2019, 3:31 am
random_walker_77 wrote: ↑
December 5th, 2019, 9:48 pm
According to bankrate, a 30yr fixed is running 3.72% in colorado, so refinancing would allow you to consolidate all your debts at a low rate, while simultaneously dropping your required mortgage payment by nearly $1K/month.

That lower mortgage payment is mostly interest, and the main benefit here is it allows you payoff the IRS, move high-interest debt to low 3.8% rate debt, and it reduces your required mortgage payment. But to be clear, if you do this, you should plan to continue paying down aggressively. Some would argue that this is a highly risky move simply because it reduces the pressure and enables people prone to unwise financial choices to build up CC debts again, and there are definitely behavioral risks to watch out for with this move. For your situation, nearing 70 & retirement, and potentially needing to downsize the house in the next 7 years, tapping the equity and lowering the required cash flow is arguably a good thing, as long as you keep tight tabs on the finances from here on out.
The husband's credit score is much lower than OP's - 670. They might not save as much if they can't get a mortgage at 3.7-3.8%.
DH checked his score today and it's 720.


Did he tell you that or have you seen proof? At this stage I would find it very hard to accept what he says without proof.

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Re: Follow Up: Husband's Surprise Debts

Post by Tamarind » Sat Dec 07, 2019 1:44 pm

stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
And, we've been there, done that. In past years, DH would refi during extended periods of unemployment. Twice in 25 years. Had we not done that, we'd be within 5 years of a paid off mortgage. We are on a much shorter runway now and mistakes are costly. DH's income varies dramatically, too. I really want to be clear-eyed about which path to take: (1) downsize; (2) pay off bills/reduce debt, or (3) refi.

With DH's varying income, how do I estimate how long it will take to payoff the CC debt, IRS & HELOC?
I'm in the camp that thinks you'd be better off downsizing. Doing so drastically reduces your monthly expenses, not just the mortgage but also property taxes, insurance, utilities, and maintenance costs. These savings compound.

It will not be so many years before you need to downsize anyway. I don't see any way for you to afford the house once your income stops, and not so long after that you will likely find it harder to keep the place up as you age. The market is good right now - it may be the best time ever to capture the equity in your home. If you sold you could wipe out every bit of your debt right away and get to work building up your retirement nest egg instead.

Estimating the time to payoff with variable income is a bit of a process of progressive approximation. Develop a monthly minimum expense estimate that includes 1/12 of your "lumpy" expenses, and covers all your minimum debt payments. You have about a 2-3 month look ahead at what your husband has earned. For each month, first reduce his earnings by 30-40% (your effective state+federal income+SE tax rate), then subtract the expense estimate. What's left reduces your debts..... Rinse and repeat. You can project forward with a low guesstimate based on his less profitable months. Make these estimates and then record the actually do you can see how successful you are being it if you still have a leak in your expenses.

Increasing how much can go to the debts will require cutting your post-tax budget as far as you can. You need to have a very precise view of every penny going out the door. Further up the thread you mentioned that your husband is still paying the bills per his own preferred order out of his own account. This is not a tenable way forward. You need to know what he is planning to spend in advance and have veto power over purchases, or else you will always be scrambling to fill the gap for things he does not think are important.

If you'll permit, two "down to brass tacks" questions:

1) You worked a 6-figure corporate job for many years. Where are *your* retirement savings? What stopped you from saving when you had much higher income?

2) While your husband may have the greatest ability to increase income to retire the debts, he seems to lack the willingness. What can you do towards that goal? Could you get a corporate job like the one you had? If not, can you supercharge your contracting work? If not, can you take a part time job doing anything? If you were to divorce today, what work would you be seeking?

Your husband's attitude seems to have been "what's his is his and your shared assets are also his". If you can arrange a larger income stream for yourself you will have more of a chance to sock some away for retirement that he can't squander and to unilaterally make larger payments against the debt.

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Re: Follow Up: Husband's Surprise Debts

Post by Tamarind » Sat Dec 07, 2019 1:52 pm

By the way, in the event that you find, when reviewing past tax filings, that your husband underreported his income or improperly reported deductions, you might be able to file for innocent spouse relief: https://www.irs.gov/businesses/small-bu ... nt-spouses

Not sure if your situation actually qualifies, as he may be reporting accurately and just failing to pay.

It goes without saying, I hope, that you should examine the 2019 tax return with great care and should refuse to sign it if you find that it is not an accurate representation of your joint income and expenses.

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Re: Follow Up: Husband's Surprise Debts

Post by ohai » Sat Dec 07, 2019 2:04 pm

bungalow10 wrote:
Sat Dec 07, 2019 10:34 am
What is stopping your husband from taking out a new credit card or line of credit without your knowledge and doing this again?
It would probably be a good idea to make a free account on Credit Karma that shows when a new such account is opened.

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Re: Follow Up: Husband's Surprise Debts

Post by HomeStretch » Sat Dec 07, 2019 2:33 pm

OP, your last post mentions “downsizing” as a possible “path” to take. It sounds like you might be reconsidering your original plan to stay in the house for a couple years.

Strongly consider downsizing now rather than later. Consulting income can stop or drop suddenly. Total outstanding debt has grown since your first post. I applaud your cost reductions so far. But the one big one that would most benefit your situation would be to reduce housing cost by downsizing.

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Re: Follow Up: Husband's Surprise Debts

Post by RickBoglehead » Sat Dec 07, 2019 2:39 pm

rterickson wrote:
Sat Dec 07, 2019 1:06 pm
JAZZISCOOL wrote:
Fri Dec 06, 2019 5:31 pm

If you have a Capital One CC, there is something called ENO (one-vendor virtual CC #) that another BH recommended for this purpose (renewals, etc.). I'm not sure what other CC's have virtual numbers right now, but I have used ENO and it was helpful. :wink:
Citi has a similar feature called Virtual Account Numbers on all of their cards. You can set up a virtual number as one-time, recurring, time-limited, etc.
The Citi Costco Visa doesn't offer this feature. :annoyed
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Re: Follow Up: Husband's Surprise Debts

Post by rterickson » Sat Dec 07, 2019 3:51 pm

RickBoglehead wrote:
Sat Dec 07, 2019 2:39 pm
rterickson wrote:
Sat Dec 07, 2019 1:06 pm
JAZZISCOOL wrote:
Fri Dec 06, 2019 5:31 pm

If you have a Capital One CC, there is something called ENO (one-vendor virtual CC #) that another BH recommended for this purpose (renewals, etc.). I'm not sure what other CC's have virtual numbers right now, but I have used ENO and it was helpful. :wink:
Citi has a similar feature called Virtual Account Numbers on all of their cards. You can set up a virtual number as one-time, recurring, time-limited, etc.
The Citi Costco Visa doesn't offer this feature. :annoyed
Looks like you're right, the Costco Visa, Costco Business Visa, and Citi Dividend cards do not have this. My bad.

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Re: Follow Up: Husband's Surprise Debts

Post by JediMisty » Sat Dec 07, 2019 4:06 pm

clip651 wrote:
Fri Dec 06, 2019 11:15 pm
stanford73 wrote:
Fri Dec 06, 2019 5:07 pm

Doing a refi is an interesting (maybe brilliant) option and would give us much-needed breathing room, provided that the HELOC is closed, CCs are no longer used, and the IRS is paid quarterly. I'd want to pay down the mortgage aggressively at that point. I just wonder if the mortgage payment would be that much lower, since the balance would be higher? And, DH's FICO (checked today) is 720, so that's better than what I thought. I realize they consider the lower of our two scores on the loan app to assign the percentage rate.
The refi may be worth looking into ... but keep in mind again the difference between secured and unsecured debt. It's similar to the earlier idea of putting more stuff onto the HELOC (which I think you later said is already maxed out).

Think long and hard before you turn unsecured debt (e.g. the credit cards) into secured debt. It may be your best option, I really don't know ... but make sure you understand all the possible downsides before you do it. You get behind on the credit cards, there is extra interest, penalties, etc, and the credit card companies get grumpy with you. You get behind on your new, bigger mortgage payment ... there is the possibility of a foreclosure at some point.

Also consider the psychology ... one consolidated debt maybe doesn't look quite so bad to your DH. It's more manageable, after all. Payment is lower than all those other pesky payments he couldn't keep up with. What's to stop him taking out new debt? A new credit card, or charging stuff to the old ones? A car loan, or a new payment plan with the IRS the next time he gets behind, etc? His mind needs to be focused on increasing income, cutting expenses, and being transparent. It's not clear to me whether consolidation helps or hurts that focus for him (or you).

I'm not necessarily saying don't do it ... you have to run the detailed numbers and see what you need to do to make progress on your overall situation. Just be sure before you jump into redoing your mortgage, and making it bigger.

best wishes,
cj
I've seen a couple of smart folks take out a second mortgage to pay off their credit card debt. All was hunky dory. They cut up their cards and vowed "never again". Two years later they get some new cards and run those up to the max. Now they have the long term debt of the increased mortgage PLUS the new credit card debt In one case my sister and her husband lost their house. As explained above, consolidating your debt will help with cash flow, but has other implications. Also, reread what the above poster explained about the thirty year term increasing the interest you will pay. If you choose this route, go into it with your eyes wide open.

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Re: Follow Up: Husband's Surprise Debts

Post by JAZZISCOOL » Sat Dec 07, 2019 4:09 pm

HomeStretch wrote:
Sat Dec 07, 2019 2:33 pm
OP, your last post mentions “downsizing” as a possible “path” to take. It sounds like you might be reconsidering your original plan to stay in the house for a couple years.

Strongly consider downsizing now rather than later. Consulting income can stop or drop suddenly. Total outstanding debt has grown since your first post. I applaud your cost reductions so far. But the one big one that would most benefit your situation would be to reduce housing cost by downsizing.
"Consulting income can stop or drop suddenly." I don't know what industry OP's DH works in, but a recession could exacerbate the downside volatility of his consulting income. Some industries may not be as affected. Just a thought...... :|

We've had a great decade of stock returns and a strong job market now but these things will revert at some point. Things I know most BH's ponder.

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Re: Follow Up: Husband's Surprise Debts

Post by BarbBrooklyn » Sat Dec 07, 2019 4:12 pm

I think that the unaddressed elephant in the room is whether OP trusts DH's reporting and to what extent her income in the past has been used to prop up a house of cards, leaving her with little to show in retirement accounts.

I know that in her shoes, I would be hiring a forensic accountant, or someone who would have a responsibility to look out solely for my financial interests.

DH might say then that she's not a team player. In turn, I would ask him for information that shows that HE was one.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

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Re: Follow Up: Husband's Surprise Debts

Post by thursdaysd » Sat Dec 07, 2019 6:21 pm

When I suggested in my first post that you need to look at DH's business' books, because I didn't understand why the business was "complicated" it was an afterthought. But now I can't stop thinking about it. I was a one person business for a few years after I retired from the megacorp, and while the tax forms were more complicated than when I was an employee (so I had an accountant take care of them), the business itself wasn't at all complicated. Money came in, and was recorded. Money went out, and was recorded. I gave both sets of records to the accountant.

You DH is, from what you have written, a one person consulting business.

He says the business is complicated - that's a red flag.
A one person outfit has two businesses - that's a red flag.
He underestimated his federal taxes by over 30% - that's a red flag.

Plus, I don't see anywhere that you have accounted for business expenses. Unless he is running the business out of the house (in which case some of the household expenses are business expenses), and probably even then, he has business expenses which, like taxes, come off the top. Is he flying business class? Staying in expensive hotels? Wining and dining prospective clients? Or just paying for internet access and a web site?

When you wrote back on Nov 26 that "his" income for Jan would be $9,923 and that after expenses you would have $2,192 we already know that was wrong because you need to subtract 40% for federal and state taxes and double FICA (leaving a $1,776 deficit), but it's not clear that the $9,923 is after business expenses.
I know that in her shoes, I would be hiring a forensic accountant, or someone who would have a responsibility to look out solely for my financial interests.
This. And a divorce lawyer, even if I wasn't getting a divorce, so I knew better how to protect myself, and where to look.
Thursday's child has far to go

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sat Dec 07, 2019 8:16 pm

To answer a few questions asked above:

1) DH is in software security sales & marketing. He is a sole proprietor of a home-based company with minimal business expenses (no travel, biz lunches, etc.); a partner in another company that is in the process of dissolving; and on commission-only sales for an international software security firm. Taxes this year were complicated mostly due to the partnership dissolving (amicably). The accountant for the partnership was involved in preparing the business tax returns & DH also sought the opinion of another accountant. That accountant had nothing to do with preparing the paperwork, only looking over what was already prepared.

2) I'll be renewing a client contract and prospecting for new business in January. I expect to secure retainers of at least $5k-$10k per month. Someone up thread suggested that I try to get a FT corporate job? As a reminder, at 68, the chances of that happening are slim to none. Age discrimination is real and I remember how challenging it was at 55, even with a strong resume/experience. Consulting is my best option for increasing income.

3) I have pulled both credit reports and cross-checked with the list DH gave me of CCs and it all checks out.

4) I'm getting up to speed on Quicken and DH has agreed that all our accounts--checking/savings/cc/retirement--will be tracked, we'll review them weekly and decide on which ones I'll pay.

5) Someone said "trust, but verify" and that's how I am proceeding. I will consult with an accountant to be sure I'm on the right track & that my financial interests are protected.

6) While I see downsizing as an option, DH is not there yet. He prefers a refi. But, I agree with everyone who pointed out the pitfalls.

7) The numbers I referenced for Dec.-Mar were all gross, since the surplus in those months is being used for payment of 2019 taxes. We expect to have those paid by March & then set aside money going forward for 2020. By, Jan. 2021, we should be setting aside (in a separate account) 30-40% of gross for taxes each month.

I'm learning slowly, but getting somewhere. Thanks, all, again...
Last edited by stanford73 on Sun Dec 08, 2019 12:59 pm, edited 3 times in total.

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sat Dec 07, 2019 8:35 pm

JAZZISCOOL wrote:
Fri Dec 06, 2019 9:50 pm
"Re: Follow Up: Husband's Surprise Debts
Post by stanford73 » Fri Dec 06, 2019 6:06 pm
I guess I don't know about the IRS transcripts. What are they & how do I access them?"


Per the IRS, there are various types of tax transcripts (which are not copies of your tax returns). In your situation, I just thought it might be a good way for you to confirm the information you have from DH and/or accountant (given it is complex). In my situation, they helped confirm some income information but I was missing a form from someone so I was able to track it down. You may or may not need it. I guess if it were me, I would be a bit forensic and want to confirm certain information. :|

https://www.irs.gov/individuals/tax-ret ... order-them

Transcript Types

We offer the following transcript types at no charge to you:
• Tax Return Transcript - shows most line items including your adjusted gross income (AGI) from your original tax return (Form 1040, 1040A or 1040EZ) as filed, along with any forms and schedules. It doesn’t show changes made after you filed your original return. This transcript is only available for the current tax year and returns processed during the prior three years. A tax return transcript usually meets the needs of lending institutions offering mortgages and student loans. Note: the secondary spouse on a joint return must use Get Transcript Online or Form 4506-T to request this transcript type. When using Get Transcript by Mail or phone, the primary taxpayer on the return must make the request.
• Tax Account Transcript - shows basic data such as return type, marital status, adjusted gross income, taxable income and all payment types. It also shows changes made after you filed your original return. This transcript is available for the current tax year and up to 10 prior years using Get Transcript Online or Form 4506-T. When using Get Transcript by Mail or phone, you’re limited to the current tax year and returns processed during the prior three years. Note: If you made estimated tax payments and/or applied an overpayment from a prior year return, you can request this transcript type a few weeks after the beginning of the calendar year to confirm your payments prior to filing your tax return.
• Record of Account Transcript - combines the tax return and tax account transcripts above into one complete transcript. This transcript is available for the current tax year and returns processed during the prior three years using Get Transcript Online or Form 4506-T.
• Wage and Income Transcript - shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Current tax year information may not be complete until July. This transcript is available for up to 10 prior years using Get Transcript Online or Form 4506-T.
• Verification of Non-filing Letter - provides proof that the IRS has no record of a filed Form 1040, 1040A or 1040EZ for the year you requested. It doesn't indicate whether you were required to file a return for that year. This letter is available after June 15 for the current tax year or anytime for the prior three tax years using Get Transcript Online or Form 4506-T. You must use Form 4506-T if you need a letter for tax years older than the prior three years.
You've mentioned you're in Colorado and it sounds like you have a good accountant. Would you feel comfortable DMing me with contact info? I don't know where to start trying to find one, frankly.

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stanford73
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Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sat Dec 07, 2019 9:10 pm

greetje wrote:
Sat Dec 07, 2019 1:13 pm
Tamarind wrote: ↑
December 6th, 2019, 3:31 am
random_walker_77 wrote: ↑
December 5th, 2019, 9:48 pm
According to bankrate, a 30yr fixed is running 3.72% in colorado, so refinancing would allow you to consolidate all your debts at a low rate, while simultaneously dropping your required mortgage payment by nearly $1K/month.

That lower mortgage payment is mostly interest, and the main benefit here is it allows you payoff the IRS, move high-interest debt to low 3.8% rate debt, and it reduces your required mortgage payment. But to be clear, if you do this, you should plan to continue paying down aggressively. Some would argue that this is a highly risky move simply because it reduces the pressure and enables people prone to unwise financial choices to build up CC debts again, and there are definitely behavioral risks to watch out for with this move. For your situation, nearing 70 & retirement, and potentially needing to downsize the house in the next 7 years, tapping the equity and lowering the required cash flow is arguably a good thing, as long as you keep tight tabs on the finances from here on out.
The husband's credit score is much lower than OP's - 670. They might not save as much if they can't get a mortgage at 3.7-3.8%.
DH checked his score today and it's 720.


Did he tell you that or have you seen proof? At this stage I would find it very hard to accept what he says without proof.
Thanks for walking me through the benefits and risks. I'm aware of the downside and the discipline required to continue to pay down the remaining debt aggressively, close the HELOC and cut up the credit cards.If DH shows over time that he is being fully transparent and we are sticking to the lower budget, while increasing income, then I'd feel more comfortable with a refi. If DH projects more zero income months ahead and it is trending that way, I don't see a path forward for a refi. I do not want to sell my beloved home, but if that's the only way to preserve the equity we do have, we might need to do it sooner, rather than in 2 years or more. The verdict is still out, but it puts me more at ease to hear you say a refi is a good move in our circumstances/age, because it lowers the required cash flow. That would allow us to stay in the house for a couple years at least & avoid the stress/disruption of finding a new place to live. I feel confident I can keep tight tabs on the finances, as long as we have enough income.

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Re: Follow Up: Husband's Surprise Debts

Post by random_walker_77 » Sat Dec 07, 2019 11:06 pm

stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
...Another option is to refi just the mortgage, or refi the mortgage taking cash out to payoff the HELOC and IRS debts. The latter just means not pulling out the 22K for CC debt. The former drops their mortgage payment to $1500/mo + the 8K/yr in insurance/property tax.
I'm not seeing how the mortgage payment would drop to $1500 after we increase the balance owed?
You've got a 309K mortgage w/ a monthly payment listed at $3,570. You've got 8K in prop-tax/insurance, so your mortgage payment is really $2900/month. Based on any mortgage calculator, that same 309K w/ a 30 yr amortization at 3.8%, would be a $1500/mo payment, so that'd free up $1400/mo in cash flow. In other words, your mortgage currently redirects $16.8K towards the loan principal each year (increasing your equity in the home). That $1500 plus 667/mo for tax/insurance is more like $2200/month, but still about $1400/month lower than your current $3570 payment.

If you refi'd, you could still pay $3570/month if you want, but you're no longer required to. What you do w/ the no-longer-mandatory $1400/month determines whether this is a good thing or a bad thing, as per all the other warnings and cautionary tales people are pointing out.
stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
5) "and sets the people doing it up for continuing the cycle that got them into the fix in the first place"
This is by far the biggest risk for anyone making this move. It gives people a lot more rope to hang themselves with.
I do not want to sell my beloved home, but if that's the only way to preserve the equity we do have, we might need to do it sooner, rather than in 2 years or more. The verdict is still out, but it puts me more at ease to hear you say a refi is a good move in our circumstances/age, because it lowers the required cash flow.

And, we've been there, done that. In past years, DH would refi during extended periods of unemployment. Twice in 25 years. Had we not done that, we'd be within 5 years of a paid off mortgage. We are on a much shorter runway now and mistakes are costly. DH's income varies dramatically, too. I really want to be clear-eyed about which path to take: (1) downsize; (2) pay off bills/reduce debt, or (3) refi.

With DH's varying income, how do I estimate how long it will take to payoff the CC debt, IRS & HELOC?
You make a rough estimate, based on historical averages. Subtract taxes, subtract your budgeted expenditures and allocate the remaining cash to paying debts and/or building up savings (and an emergency fund!). For example, if the last few years have been {150K, 200K, 166K}, a conservative approach would be to budget based on the lowest year, and then hope for a positive surprise allowing you to payoff more. Taking an average of the 3 years is another way to go, but you're more likely to get a downside surprise.
stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
I'm realizing more and more that keeping the house is a luxury and a risk.
.
.
I do not want to sell my beloved home, but if that's the only way to preserve the equity we do have, we might need to do it sooner, rather than in 2 years or more. The verdict is still out, but it puts me more at ease to hear you say a refi is a good move in our circumstances/age, because it lowers the required cash flow.
Just to be clear, I'm somewhat hesitant to term it "a good move". It's perhaps not a bad move, given an overwhelming priority to keep the house a few more years and an iron stomach for risk tolerance. Personally, if it was me, I'd want to cash out and downsize now, but I'm definitely on the conservative side. Still, I'd like to lay this out for you.

I've eschewed discussing selling the house b/c you'd previously and quite firmly taken that off the table. W/ your more recent statement, I'd like to talk more about the risks you're taking in keeping the house. Eyes wide open, and all that.
* your assets are not diversified and an uncomfortably large percentage of your net worth (aka retirement money) is in your home equity
* real estate is local. If local house prices drop, it'd put you in a bad position
* your income is highly variable, which increases your risks
* behavioral risks that many have reinforced -- increasing the mortgage or even a refi is empirically a risk for losing your home, due simply to human nature. As you say, you've "been there, done that" and can appreciate that this is a risk
* home as a leveraged asset: This is the big one. Let's say this longest-bull-record-on-record ends. That's likely to affect your incomes. If it drops your resale price by 30%, does this mean you've just lost 30% of your home equity? No! The leverage of owning this house w/ the bank's money means that you've lost much more than that. Even though you own ~70% of the house, you eat 100% of the losses in a downturn. For example, if you sold today for $1M, you might have 550K after paying off the mortgage, HELOC, and realtor fees, right? If the market drops 30% and you end up only getting 700K, you'd only realize 250K.
***A 30% drop reduces your equity from $550K to $250K!!!***
Of course leverage works both ways, if prices go up, you win. But my main point is that if prices go down, you lose, and you lose big. If you wait a few more years, you're not going to be in a position to wait out a market downturn. Especially if your income drops at the same time, which is likely in a downturn. And besides, how many more years is your spouse going to keep working?

Recall all the initial advice (perhaps in the first thread?) about downsizing out of the house? The reason for an overwhelming number of recommendations in this direction is because, quite frankly, keeping the house is risky. You can try to keep the house longer, and there's a chance that will work out ok, but it's definitely a riskier direction. Whether taking those risks for the rewards of staying in your beloved home (note, your emotional connection to your house can be a liability for clear-headed risk assessment) is worth it is up to you, but... do understand, this is a significant risk. Normally, a risky choice is an active choice. Here, rather insidiously, the inactive option of staying in the house is what I'm arguing is the risky choice!

Startingover2019
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Re: Follow Up: Husband's Surprise Debts

Post by Startingover2019 » Sun Dec 08, 2019 1:52 am

stanford73 wrote:
Fri Dec 06, 2019 4:44 pm
BarbBrooklyn wrote:
Thu Dec 05, 2019 8:55 pm
I'm going to tread gently into turf that I hope won't get my post deleted...

So, you and DH have VERY unequal incomes. I was in this situation for many years (me on the low side) with DH#1 and then on the high side with DH#2. My high earning MBA daughter went into her marriage knowing that she would ALWAYS out-earn her book editor DH by 3 or 4 times and they sought premarital counseling to figure out how to address this before they got married.

One of the things you might want to figure out, going forward, is how equitably to apportion responsibility for various financials BEFORE they are due so that there are no surprises. Sometimes in a marriage, we make assumptions about who is going to get the oil in the car changed, but we never talk about it; then the engine blows up and there is a lot of finger pointing. (Been there).

There has been a lot of discussion here about you taking control of finances. It feels to me as though you both need to honestly talk through the finances and make a contract about who is responsible for what.
I totally agree that we need to both be responsible for the finances going forward. But, I want to clarify that DH and I made the same six-figure salaries while working for Fortune 100 corporations. When I switched to academia, I made less, but it's only been in the last 7 years that DH's income has been $150k+ and mine switched back to consulting work.
So if you both made the same six figures in the past, why was most of the expenses and debts on his shoulders while your money seemed to be used for “kid’s tuition” and “your own bills” not family bills? Seems quite a bit unfair and seems like you contributed a bit to this problem over by not assisting your husband enough.
Seems like it’s a good possibility that your husband had too many bills to keep up and needed help and didn’t ask for it from you, and therefore kept putting you in more and more debt.
Just a thought to help you see your possible role in this snowball effect.
But keep digging yourself out and I still stick with selling the house and use that money to be debt free. Especially now that someone above stated about the 30% drop of the market leaving you with half the profit.

Topic Author
stanford73
Posts: 129
Joined: Tue Sep 11, 2018 1:05 am

Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sun Dec 08, 2019 12:22 pm

random_walker_77 wrote:
Sat Dec 07, 2019 11:06 pm
stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
...Another option is to refi just the mortgage, or refi the mortgage taking cash out to payoff the HELOC and IRS debts. The latter just means not pulling out the 22K for CC debt. The former drops their mortgage payment to $1500/mo + the 8K/yr in insurance/property tax.
I'm not seeing how the mortgage payment would drop to $1500 after we increase the balance owed?
You've got a 309K mortgage w/ a monthly payment listed at $3,570. You've got 8K in prop-tax/insurance, so your mortgage payment is really $2900/month. Based on any mortgage calculator, that same 309K w/ a 30 yr amortization at 3.8%, would be a $1500/mo payment, so that'd free up $1400/mo in cash flow. In other words, your mortgage currently redirects $16.8K towards the loan principal each year (increasing your equity in the home). That $1500 plus 667/mo for tax/insurance is more like $2200/month, but still about $1400/month lower than your current $3570 payment.

If you refi'd, you could still pay $3570/month if you want, but you're no longer required to. What you do w/ the no-longer-mandatory $1400/month determines whether this is a good thing or a bad thing, as per all the other warnings and cautionary tales people are pointing out.
stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
random_walker_77 wrote:
Sat Dec 07, 2019 9:31 am
5) "and sets the people doing it up for continuing the cycle that got them into the fix in the first place"
This is by far the biggest risk for anyone making this move. It gives people a lot more rope to hang themselves with.
I do not want to sell my beloved home, but if that's the only way to preserve the equity we do have, we might need to do it sooner, rather than in 2 years or more. The verdict is still out, but it puts me more at ease to hear you say a refi is a good move in our circumstances/age, because it lowers the required cash flow.

And, we've been there, done that. In past years, DH would refi during extended periods of unemployment. Twice in 25 years. Had we not done that, we'd be within 5 years of a paid off mortgage. We are on a much shorter runway now and mistakes are costly. DH's income varies dramatically, too. I really want to be clear-eyed about which path to take: (1) downsize; (2) pay off bills/reduce debt, or (3) refi.

With DH's varying income, how do I estimate how long it will take to payoff the CC debt, IRS & HELOC?
You make a rough estimate, based on historical averages. Subtract taxes, subtract your budgeted expenditures and allocate the remaining cash to paying debts and/or building up savings (and an emergency fund!). For example, if the last few years have been {150K, 200K, 166K}, a conservative approach would be to budget based on the lowest year, and then hope for a positive surprise allowing you to payoff more. Taking an average of the 3 years is another way to go, but you're more likely to get a downside surprise.
stanford73 wrote:
Sat Dec 07, 2019 1:10 pm
I'm realizing more and more that keeping the house is a luxury and a risk.
.
.
I do not want to sell my beloved home, but if that's the only way to preserve the equity we do have, we might need to do it sooner, rather than in 2 years or more. The verdict is still out, but it puts me more at ease to hear you say a refi is a good move in our circumstances/age, because it lowers the required cash flow.
Just to be clear, I'm somewhat hesitant to term it "a good move". It's perhaps not a bad move, given an overwhelming priority to keep the house a few more years and an iron stomach for risk tolerance. Personally, if it was me, I'd want to cash out and downsize now, but I'm definitely on the conservative side. Still, I'd like to lay this out for you.

I've eschewed discussing selling the house b/c you'd previously and quite firmly taken that off the table. W/ your more recent statement, I'd like to talk more about the risks you're taking in keeping the house. Eyes wide open, and all that.
* your assets are not diversified and an uncomfortably large percentage of your net worth (aka retirement money) is in your home equity
* real estate is local. If local house prices drop, it'd put you in a bad position
* your income is highly variable, which increases your risks
* behavioral risks that many have reinforced -- increasing the mortgage or even a refi is empirically a risk for losing your home, due simply to human nature. As you say, you've "been there, done that" and can appreciate that this is a risk
* home as a leveraged asset: This is the big one. Let's say this longest-bull-record-on-record ends. That's likely to affect your incomes. If it drops your resale price by 30%, does this mean you've just lost 30% of your home equity? No! The leverage of owning this house w/ the bank's money means that you've lost much more than that. Even though you own ~70% of the house, you eat 100% of the losses in a downturn. For example, if you sold today for $1M, you might have 550K after paying off the mortgage, HELOC, and realtor fees, right? If the market drops 30% and you end up only getting 700K, you'd only realize 250K.
***A 30% drop reduces your equity from $550K to $250K!!!***
Of course leverage works both ways, if prices go up, you win. But my main point is that if prices go down, you lose, and you lose big. If you wait a few more years, you're not going to be in a position to wait out a market downturn. Especially if your income drops at the same time, which is likely in a downturn. And besides, how many more years is your spouse going to keep working?

Recall all the initial advice (perhaps in the first thread?) about downsizing out of the house? The reason for an overwhelming number of recommendations in this direction is because, quite frankly, keeping the house is risky. You can try to keep the house longer, and there's a chance that will work out ok, but it's definitely a riskier direction. Whether taking those risks for the rewards of staying in your beloved home (note, your emotional connection to your house can be a liability for clear-headed risk assessment) is worth it is up to you, but... do understand, this is a significant risk. Normally, a risky choice is an active choice. Here, rather insidiously, the inactive option of staying in the house is what I'm arguing is the risky choice!
Thank you for another thoughtful and helpful post. Definitely worth considering all the risk we'd be taking on, especially since DH would not be willing to shutdown the HELOC after paying it off with a refi. If we cannot get on the same page, I think we'll probably wind up selling the house whether or not DH wants to go in that direction.

Topic Author
stanford73
Posts: 129
Joined: Tue Sep 11, 2018 1:05 am

Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sun Dec 08, 2019 12:38 pm

Startingover2019 wrote:
Sun Dec 08, 2019 1:52 am
stanford73 wrote:
Fri Dec 06, 2019 4:44 pm
BarbBrooklyn wrote:
Thu Dec 05, 2019 8:55 pm
I'm going to tread gently into turf that I hope won't get my post deleted...

So, you and DH have VERY unequal incomes. I was in this situation for many years (me on the low side) with DH#1 and then on the high side with DH#2. My high earning MBA daughter went into her marriage knowing that she would ALWAYS out-earn her book editor DH by 3 or 4 times and they sought premarital counseling to figure out how to address this before they got married.

One of the things you might want to figure out, going forward, is how equitably to apportion responsibility for various financials BEFORE they are due so that there are no surprises. Sometimes in a marriage, we make assumptions about who is going to get the oil in the car changed, but we never talk about it; then the engine blows up and there is a lot of finger pointing. (Been there).

There has been a lot of discussion here about you taking control of finances. It feels to me as though you both need to honestly talk through the finances and make a contract about who is responsible for what.
I totally agree that we need to both be responsible for the finances going forward. But, I want to clarify that DH and I made the same six-figure salaries while working for Fortune 100 corporations. When I switched to academia, I made less, but it's only been in the last 7 years that DH's income has been $150k+ and mine switched back to consulting work.
So if you both made the same six figures in the past, why was most of the expenses and debts on his shoulders while your money seemed to be used for “kid’s tuition” and “your own bills” not family bills? Seems quite a bit unfair and seems like you contributed a bit to this problem over by not assisting your husband enough.
Seems like it’s a good possibility that your husband had too many bills to keep up and needed help and didn’t ask for it from you, and therefore kept putting you in more and more debt.
Just a thought to help you see your possible role in this snowball effect.
But keep digging yourself out and I still stick with selling the house and use that money to be debt free. Especially now that someone above stated about the 30% drop of the market leaving you with half the profit.
That's a valid question, especially if you don't know all the details. I won't share them here, but suffice to say that I more than held up my end of the deal by continuously working (FT jobs/consulting) through pregnancies/child rearing & DH's chronic unemployment to cover family expenses. DH would be the first to confirm that fact! When my salary wasn't enough, I exhausted my considerable inheritance to pay family bills, including mortgage/utilities/food/tuition, etc. Had I had the good sense (& maybe a crystal ball) to listen to the advice of a wise lawyer years ago, I wouldn't be in this situation today.

Topic Author
stanford73
Posts: 129
Joined: Tue Sep 11, 2018 1:05 am

Re: Follow Up: Husband's Surprise Debts

Post by stanford73 » Sun Dec 08, 2019 12:54 pm

BarbBrooklyn wrote:
Sat Dec 07, 2019 4:12 pm
I think that the unaddressed elephant in the room is whether OP trusts DH's reporting and to what extent her income in the past has been used to prop up a house of cards, leaving her with little to show in retirement accounts.

I know that in her shoes, I would be hiring a forensic accountant, or someone who would have a responsibility to look out solely for my financial interests.

DH might say then that she's not a team player. In turn, I would ask him for information that shows that HE was one.
I'm definitely doing that and wish I'd thought about doing it much sooner. When "you don't know what you don't know" you are clearly at a disadvantage. I'm slowly figuring it out, but I sure wish I was 10 years younger to handle it all. It's overwhelming.

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