Connect with us

Market Insider

How To Protect Your Credit And Assets When Marrying Someone With Debt

Published

on

[ad_1]

You spent your single days building a good credit rating, paying off your debts and saving a nice chunk of change. Your partner? Not so much. In fact, your future spouse has quite a bit of debt.

Marriage is about making it work for better or worse, but it doesn’t seem fair that exchanging vows could unravel all your hard work. Fortunately, it doesn’t have to. Here’s what you should know about protecting your finances when marrying someone with debt.

How Getting Married Affects Your Credit

When two people get married, they combine many areas of their lives. The two of you may share the same home, bank accounts, perhaps even last name. So how does getting married affect your credit?

“The short answer is that it does not,” said Emily Pollock, a partner specializing in matrimonial and family law at Kasowitz Benson Torres in New York. She noted that even if you change your last name, there’s no immediate change to your credit history or score. “Your credit score is tied to your Social Security number, which is unaffected by marriage,” she said.

Even so, it is possible for your spouse to impact your credit (and vice versa) once you’re married.

“If you incur joint debts with your spouse, those will appear on your credit report,” Pollock explained. “If there are late or delinquent payments for those accounts, that can impact your credit.” So if you share a mortgage and your spouse forgets to make the payment one month, both your scores could take a hit.

Pollock also raised the situation in which the two of you decide to apply jointly for a loan. If your spouse has poor credit ― even if yours is good ― that could force you as a couple to pay a higher interest rate or not qualify at all.

Are You Responsible For Your Spouse’s Debt?

Similar to your credit, any debt that you or your spouse incurred before tying the knot will remain that individual’s responsibility. “Premarital debt of a party will not become joint debt,” said Pollock. However, once you’re married, things work differently.

Any debt that you incur jointly as a couple will be yours to share ’til death do you part. Depending on where you live, any debt your spouse racks up on their own, even if it’s without your knowledge, could also become equally your responsibility.

The issue is whether you live in a community property state or a common law state.

“Most states are common law states,” said Alison Norris, a certified financial planner at SoFi. In those states, debt that is taken on by one spouse in their name alone will usually be considered their responsibility alone.

In addition, Norris said, “In about half of the common law states, a creditor cannot go after certain joint property to pay the separate debts of one spouse.” She advised couples in those states to consider titling their ownership of joint assets as “tenants by the entirety” for greater protection.

However, according to Pollock, debt that is in just one person’s name in a common law state could still be considered the responsibility of both spouses “if the debt is related to what are considered marital expenses.” (Those include rent or mortgage payments, utilities, groceries and childcare.) Though creditors can’t try to collect from the spouse who didn’t incur the debt, missed payments can still harm both spouses’ credit.

In community property states, all debt that is incurred during the marriage is considered the responsibility of both parties, regardless of whose name it’s in or what the funds were used for.

“This means a married woman in California could be liable for credit card debt racked up by her husband behind her back,” said Norris. “Lack of knowledge or even attempts to prevent the debt from being incurred will not protect an innocent spouse in a community property state.”

Community property states include Alaska (if both parties agree to set up their finances that way), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Finally, keep in mind that if you use your own money to help your spouse repay the debt they brought into the marriage, don’t expect to get those funds back in the event of a divorce, regardless of where you live.

What To Do To Protect Yourself

As with anything in marriage, success in handling your finances starts with a strong foundation of communication. It’s important to talk about money regularly and be open and honest with each other.

Of course, we know that not everyone is honest and not all marriages are successful. So it doesn’t hurt to take a few precautions.

First, you can protect your credit and assets by not adding your name to your partner’s debt, “even if you view yourself as a financial team,” said Norris. You might want to help pay off those debts if the two of you decide that’s what’s best for your family. But on paper, the debt should belong to your spouse alone.

Similar considerations apply to debts you take on during the marriage. If your spouse’s debt could have impacted their credit negatively, you might want to think about putting credit cards or loans in your name only to qualify for better terms and interest rates. The trade-off here is that you can’t include your partner’s income on the application, so you might qualify to borrow less.

Finally, if you live in a community property state, you may want to take extra measures to ensure your assets are protected. Though it’s often a sensitive subject to bring up, a prenuptial agreement can do just that.

“Executing a prenuptial agreement can help to define how responsibility for different kinds of debts can be allocated, including the repayment of debts that a party incurred before the marriage,” said Pollock.

Without a prenup in place, much of your financial situation is left open to interpretation. “Meeting with counsel to discuss how a prenuptial agreement can alleviate those concerns is a good idea,” Pollock said.

The good news is that your intended’s premarital debt doesn’t have to be a deal breaker. It might impact your household budget and your lifestyle as a married couple, and you should find out how much they owe well before the wedding. But legally, that debt doesn’t become yours just because you got married.

What’s usually more important is to pay attention to how your spouse handles their finances. Maybe they pursued an expensive degree or lost a job. In that case, it makes sense that they’d have some debt to pay off. But if the debt is a result of overspending or negligent behavior, you should recognize there’s a good chance that behavior isn’t going to change once they say “I do.”

There are steps you can take to protect your own assets, but at the end of the day, you should be able to trust your spouse to be honest about their financial situation and to make smart decisions that benefit you both. Otherwise, why get married at all?

[ad_2]

Source link

قالب وردپرس

Market Insider

4 things kids need to know about money

Published

on

By

(NC) Responsible spending includes knowing the difference between wants and needs. Back-to-school season, with added expenses and expectations around spending, is the perfect time to not only build your own budget for the year ahead, but also to introduce your own children to the concept of budgeting.

The experts at Capital One break down four basic things that every child should know about money, along with tips for bringing real-life examples into the conversation.

What money is. There’s no need for a full economic lesson,but knowing that money can be exchanged for goods and services, and that the government backs its value, is a great start.
How to earn money. Once your child understands what money is, use this foundational knowledge to connect the concepts of money and work. Start with the simple concept that people go to work in exchange for an income, and explain how it may take time (and work) to save for that new pair of sneakers or backpack. This can help kids develop patience and alleviate the pressure to purchase new items right away that might not be in your budget.
The many ways to pay. While there is a myriad of methods to pay for something in today’s digital age, you can start by explaining the difference between cash, debit and credit. When teaching your kids about credit, real examples help. For instance, if your child insists on a grocery store treat, offer to buy it for them as long as they pay you back from their allowance in a timely manner. If you need a refresher, tools like Capital One’s Credit Keeper can help you better understand your own credit score and the importance of that score to overall financial health.
How to build and follow a budget. This is where earning, spending, saving and sharing all come together. Build a budget that is realistic based on your income and spending needs and take advantage of banking apps to keep tabs on your spending in real-time. Have your kids think about how they might split their allowance into saving, spending and giving back to help them better understand money management.

Continue Reading

Market Insider

20 Percent Of Americans In Relationships Are Committing Financial Infidelity

Published

on

By

Nearly 30 million Americans are hiding a checking, savings, or credit card account from their spouse or live in partner, according to a new survey from CreditCards.com. That’s roughly 1 in 5 that currently have a live in partner or a spouse.

Around 5 million people — or 3 percent — used to commit “financial infidelity,” but no longer do.

Of all the respondents, millennials were more likely than other age groups to hide financial information from their partner. While 15 percent of older generations hid accounts from their partner, 28 percent of millennials were financially dishonest.

Regionally, Americans living in the South and the West were more likely to financially “cheat” than those living in the Northeast and Midwest.

Insecurity about earning and spending could drive some of this infidelity, according to CreditCards.com industry analyst Ted Rossman.

When it comes to millennials, witnessing divorce could have caused those aged 18-37 to try and squirrel away from Rossman calls a “freedom fund”.

“They’ve got this safety net,” Rossman said. They’re asking: “What if this relationship doesn’t work out?”

As bad as physical infidelity

More than half (55 percent) of those surveyed believed that financial infidelity was just as bad as physically cheating. That’s including some 20 percent who believed that financially cheating was worse.

But despite this, most didn’t find this to be a deal breaker.

Over 80 percent surveyed said they would be upset, but wouldn’t end the relationship. Only 2 percent of those asked would end the relationship if they discovered their spouse or partner was hiding $5,000 or more in credit card debt. That number however is highest among those lower middle class households ($30,000-$49,999 income bracket): Nearly 10 percent would break things off as a result.

Roughly 15 percent said they wouldn’t care at all. Studies do show however that money troubles is the leading cause of stress in a relationship.

That’s why, Rossman says, it’s important to share that information with your partner.

“Talking about money with your spouse isn’t always easy, but it has to be done,” he said. “You can still maintain some privacy over your finances, and even keep separate accounts if you and your spouse agree, but you need to get on the same page regarding your general direction, otherwise your financial union is doomed to fail.”

With credit card rates hovering at an average of 19.24 percent APR, hiding financial information from a partner could be financially devastating.

But, Rossman adds, it’s not just about the economic impact but also the erosion of trust.

“More than the dollars and cents is that trust factor,” he said. “I think losing that trust is so hard to regain. That could be a long lasting wedge.”

Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.

Source link

قالب وردپرس

Continue Reading

Market Insider

7 Examples Of Terrible Financial Advice We’ve Heard

Published

on

By

Between television, radio, the internet and well-meaning but presumptuous friends and family, we’re inundated with unsolicited advice on a daily basis. And when it comes to money, there’s a ton of terrible advice out there. Even so-called experts can lead us astray sometimes.

Have you been duped? Here are a few examples of the worst money advice advisers, bloggers and other personal finance pros have heard.

1. Carry a balance to increase your credit score.

Ben Luthi, a money and travel writer, said that a friend once told him that his mortgage loan officer advised him to carry a balance on his credit card in order to improve his credit score. In fact, the loan officer recommended keeping the balance at around 50 percent of his credit limit.

“This is the absolute worst financial advice I’ve ever heard for several reasons,” Luthi said. For one, carrying a credit card balance doesn’t have any effect on your credit at all. “What it does do is ensure that you pay a high interest rate on your balance every month, neutralizing any other benefits you might get from the card,” Luthi explained. “Also, keeping a 50 percent credit utilization is a surefire way to hurt your credit score, not help it.”

Some credit experts recommend keeping your balance below 30 percent of the card limit, but even that’s not a hard-and-fast rule. Keeping your balance as low as possible and paying the bill on time each month is how you improve your score.

2. Avoid credit cards ― period.

Credit cards can be a slippery slope for some people; overspending can lead to a cycle of debt that’s tough to escape.

But avoiding credit cards on principle, something personal finance gurus like Dave Ramsey push hard, robs you of all their potential benefits.

“Credit cards are a good tool for building credit and earning rewards,” explained personal finance writer Kim Porter. “Plus, there are lots of ways to avoid debt, like using the card only for monthly bills, paying off the card every month and tracking your spending.”

If you struggle with debt, a credit card is probably not for you. At least not right now. But if you are on top of your finances and want to leverage debt in a strategic way, a credit card can help you do just that.

3. The mortgage you’re approved for is what you can afford.

“The worst financial advice I hear is to buy as much house as you can afford,” said R.J. Weiss, a certified financial planner who founded the blog The Ways to Wealth. He explained that most lenders use the 28/36 rule to determine how much you can afford to borrow: Up to 28 percent of your monthly gross income can go toward your home, as long as the payments don’t exceed 36 percent of your total monthly debt payments. For example, if you had a credit card, student loan and car loan payment that together totaled $640 a month, your mortgage payment should be no more than $360 (36 percent of $1,000 in total debt payments).

“What homeowners don’t realize is this rule was invented by banks to maximize their bottom line ― not the homeowner’s financial well-being,” Weiss said. “Banks have figured out that this is the largest amount of debt one can take on with a reasonable chance of paying it back, even if that means you have to forego saving for retirement, college or short-term goals.”

4. An expensive house is worth it because of the tax write-off.

Scott Vance, owner of taxvanta.com, said a real estate agent told him when he was younger that it made sense to buy a more expensive house because he had the advantage of writing off the mortgage interest on his taxes.

But let’s stop and think about that for a moment. A deduction simply decreases your taxable income ― it’s not a dollar-for-dollar reduction of your tax bill. So committing to a larger mortgage payment to take a bigger tax deduction still means paying more in the long run. And if that high mortgage payment compromises your ability to keep up on other bills or save money, it’s definitely not worth it.

“Now, as a financial planner focusing on taxes, I see the folly in such advice,” he said, noting that he always advises his client to consider the source of advice before following it. ”Taking tax advice from a Realtor is … like taking medical procedure advice from your hairdresser.”

5. You need a six-month emergency fund.

One thing is true: You need an emergency fund. But when it comes to how much you should save in that fund, it’s different for each person. There’s no cookie-cutter answer that applies to everyone. And yet many experts claim that six months’ worth of expenses is exactly how much you should have socked away in a savings account.

“I work with a lot of Hollywood actors, and six months won’t cut it for these folks,” said Eric D. Matthews, CEO and wealth adviser at EDM Capital. “I also work with executives in the same industry where six months is overkill. You need to strike a balance for your work, industry and craft.”

If you have too little saved, a major financial blow can leave you in debt regardless. And if you set aside too much, you lose returns by leaving the money in a liquid, low-interest savings account. “The generic six months is a nice catch-all, but nowhere near the specific need of the individual’s unique situation… and aren’t we all unique?”

6. You should accept your entire student loan package.

Aside from a house, a college education is often one of the biggest purchases people make in their lifetimes. Often loans are needed to bridge the gap between college savings and that final tuition bill. But just because you’re offered a certain amount doesn’t mean you need to take it all.

“The worst financial advice I received was that I had to accept my entire student loan package and that I had no other options,” said Gina Zakaria, founder of The Frugal Convert. “It cost me a lot in student loan debt. Now I tell everyone that you never have to accept any part of a college financial package that you don’t want to accept.” There are always other options, she said.

7. Only invest in what you know.

Even the great Warren Buffett, considered by many to be the best investor of all time, gets it wrong sometimes. One of his most famous pieces of advice is to only invest in what you know, but that might not be the right guidance for the average investor.

In theory, it makes sense. After all, you don’t want to tie up your money in overly complicated investments you don’t understand. The problem is, most of us are not business experts, and it’s nearly impossible to have deep knowledge of hundreds of securities. “Diversification is key to a good portfolio, and investing in what you know leads to a very un-diversified portfolio,” said Britton Gregory, a certified financial planner and principal of Seaborn Financial. “Instead, invest in a well-diversified portfolio that includes many companies, even ones you’ve never heard of.”

That might mean enlisting the help of a professional, so make sure it’s one who has your best interests at heart.

Source link

قالب وردپرس

Continue Reading

Chat

Trending