As many of us are putting the final touches on festive holiday wish lists, let’s spend a few minutes on a topic that is on top of a less-desirable list: those who are less likely to experience financial security in retirement. [Read more…]
After retirement, college planning is the second most common financial concern for many families. That is not a surprise: collectively, American owe $1.4 trillion in student loan debt, and an average 2016 graduate owed $37,172 by the time he or she walked across the stage to collect a diploma. Student loans don’t go away until they are repaid, which means that families must think long and hard before they allow their high-school aged kids to sign financing agreements that will have decade-long consequences. [Read more…]
Just because the divorce is behind you does not mean you are “done” when it comes to finances. Sure, some of the uncertainty is resolved, but that is not a reason to relax, fall into old habits, or lose sight of the fact that you are in a new financial reality.
What does that mean for you as you enter your newly single life? [Read more…]
Have you noticed how birthdays, anniversaries and holidays always sneak up on you? Your logical brain knows that a whole year (52 weeks!) goes by in between most celebrations, and yet the calendar often catches you unawares. Quick! I need a birthday gift for my husband / aunt / nephew! Who do I call for that?
While I don’t recommend calling your CPA with this question, I bet there is a thing or two he or she could share that would relieve some of the stress and pressure. If you were to call me, here is what I would recommend. [Read more…]
After a divorce, many Baby Boomers swear they will never marry again. Then they fall in love. In a previous post, Boomers: In your next relationship just shack up, I listed the financial incentives that are fueling the surge in seniors shacking up together. In this post, I will share tips on how to handle your finances when living in sin.
Share Household Expenses? Definitely
Many divorces are sparked by the inability to talk openly about money. In your post-divorce relationship, don’t fall into the same trap that got you into that divorce. Make it a priority to go over the money situation once a month. Share the household expenses equally or proportionately based on your respective incomes. Here’s where that joint account comes in handy to pay the bills. You each deposit your share of money to cover expenses and pay for them out of the joint account.
When I say “household expenses”, I am not talking about improvements to the house; fund those by the person who owns the house. Sharing in the cost of remodeling or major repairs can get complicated when one of you passes away first without clearly covering this situation in the estate planning documents. Again, I can refer you to excellent estate planning attorneys in the Brazos Valley.
Mingle Assets & Debt? Nope
When shacking up together, retain separate checking accounts. One joint account is fine as long as you also have your separate account. Do not apply for a joint credit card. Do not comingle debt.
Do not contribute toward the purchase of a major asset that is titled to your partner. Talking about houses, vehicles, boats, airplanes and investment accounts. Ok, if you just have to contribute, be sure your name is also on the title. If you are leasing an abode, get both your names on that lease. No exceptions. Consult with an estate planning attorney. Ask me for the best ones in the Brazos Valley. Do not get yourself into the pickle of co-owning a house with your partner’s mother after your partner tragically and suddenly drops off the perch.
Get a No-Nup? Yep
Ok, it might not be romantic, but get a no-nup anyway. This is a legal document that addresses property division, financial support and debt planning for the possibility that your relationship ends prior to either of you passing on. You want to be clear what will happen to your assets if and when the relationship ends. It is not a DIY project. You will need a family law attorney, so call me if you want recommendations.
It used to be called living in sin. It is now socially acceptable and growing by leaps and bounds among boomers. Shacking up is a popular alternative to marriage and divorce, even a nice collaborative divorce. Older people are living together for an average of nine years. Financial reasons top the list of incentives.
Loss of Income. Alimony usually stops when the recipient marries. If you have survivor’s pension benefits, you might lose those if you remarry. If you are receiving a share of your late or former spouse’s Social Security benefits, you could lose those benefits if you remarry before your 60th birthday. If you remarry after age 60 (age 50 if you are disabled), you can collect benefits on your former spouse’s record.
Potential Financial Burdens. In Texas, both spouses are on the hook for most debts incurred during the marriage, regardless of who incurred the debt. Then there is the cost of nursing homes at $5,000 a month in the Bryan College Station area. As a married couple, such costs can devastate the surviving spouse’s financial security.
Tax Disincentives. If each of you has income, as a married couple you could be thrown into a higher tax bracket. As singles living together, you each get $3,000 of capital losses to offset ordinary income, which results in an offset of $6,000 over the two tax returns. As a married couple filing with a joint tax return, you two would only get $3,000 to offset.
Estate Planning Risks. Protecting their children’s inheritance is a big reason Baby Boomers opt to cohabitate. Assure yourself and your heirs that their inheritance will remain intact. Visit with an estate planning attorney before you move in together. Contact me if you need a recommendation for an excellent estate planning attorney in the Brazos Valley.
In my next blog, I’ll give you tips for what to do and what not to do when shacking up. Do’s and Don’ts for Boomers Living in Sin
Most people think alimony has to be tax deductible for the payor and taxable income for the recipient. Actually, you can elect to have not-alimony. So why would you want to do that?
- When the recipient is in a higher tax bracket than the payor.
- The payor will not get a tax deduction because of a lack of current income or their income is non-taxable.
- The alimony payments are front-loaded so that the payor would get slammed with excess alimony recapture in later years.
- When the alimony is being used for property settlement and the recipient can’t talk the payor into grossing up the alimony checks to cover the income tax on the payments.
Even though a couple can elect-out of taxable alimony, they cannot elect-in to taxable alimony. For payments to be treated as taxable and deductible alimony, the payments have to meet all of a list of IRS requirements.
There’s enormous power in those three little digits.
When you’re going through a divorce, it seems like you’re surrounded by dollar signs and considerations about your financial future. But is it really necessary to add your credit score to that growing list of concerns?
Is A Healthy Credit Score Really THAT Important?
While credit reporting and the scales being used to rate an individual’s credit worthiness have changed a bit over the years, the sentiment has stayed the same.
There’s usually a range of numbers (let’s say 500-900), and your score (based on factors such as history of your credit accounts, whether or not you repaid the debts on time and the ratio of debt to available credit) is determined within this range.
With this score in hand, lenders, services and other entities can then assess whether or not they’ll be able to extend credit, service or better rates to you. And as someone who’s going through a divorce and will have to make some lifestyle changes and adjustments, having a favorable credit score could prove quite helpful.
What are some reasons for needing a healthy credit score?
- Establishing a mortgage for a new home
- Getting a loan for a new car or student loans
- Opening credit accounts for purchases and expenses
- Qualifying for better insurance rates
- Applying for certain jobs which require a check of your credit history
We’re an economy and a society that runs on credit, so it’s important to know your score and the factors that contribute to it.
Okay, But Does Divorce Affect My Credit Score?
I recently had the chance to chat with Julie Springer, Senior Vice President of TransUnion, on the effects of divorce on an individual’s credit score.
The short answer: Divorce alone won’t affect your credit score, but some of the financial changes associated with the process could certainly make an impact.
Ms. Springer mentions the fact that many couples co-sign for loans and credit accounts, and as these accounts are closed with the divorce, individuals may see changes to their credit report and score.
- The individual being removed from an account will see their history with that account end.
- The individual now minting the open account could see a rise in their ratio of debt to credit.
- Any late payments are now the sole responsibility of the individual with the account.
Springer’s example: A couple has an account with a balance of $1000. During the divorce, person A is removed from the account, which means their history with that account is now complete on their credit report. Person B is left with a $1000 balance to pay off, which could likely affect their debt to credit ratio (a factor that is considered when determining and individual’s credit score.)
Tips For Minimizing Negative Effects Of Divorce On Your Credit Score
Ms. Springer also had a few ideas to help individuals minimize any negative effects changes from a divorce may have on their financial accounts.
- Split accounts, debts and savings — If you can’t split the responsibilities of an account, divide the responsibilities of a joint debt. (For example: The person living in the house takes on the mortgage, the spouse who takes the car gets the auto loan, etc etc.)
- Make a list of current debts and the payment due dates — Your spouse may have handled paying the bills, so it’s important to know the who, what, when and where to help avoid missing any payments.
- Remove each other as authorized users on accounts — If he or she misses any payments, this can negatively impact your credit score.
- Create a post-divorce budget — Splitting one household income into two can change your spending habits and lifestyle, so it’s important you create and implement a realistic post-divorce budget to help curb any extra spending which may cause you to go into debt.
- Check your credit report — Make sure you stay on top of your credit report, especially a year or so after the divorce. This will allow you to spot any changes that may have happened as a result, including any missed or late payments on accounts in your name.
There are a variety of services and tools to help you view, manage and monitor your credit report, but I definitely recommend you first start by checking your report and score with TransUnion.
Being savvy with your finances is the quickest and easiest way to minimize (and even avoid) the negative effects of divorce in your life. Dodge a drama-filled divorce and spare yourself the heartache of a messy ordeal by getting your free copy of my ebook, “The Pitfalls of Divorce: Avoiding the Five Most Common Mistakes Couples Make During Divorce.”
Fact: 30% of divorced women over the age of 62 who are still single live at or below the poverty line, according to research by Susan Brown, a professor at Bowling Green State University who has chronicled “gray divorce” throughout the years.
If we were to compare that to married couples in the same age demographic, only 4% live at or under the poverty line.
I just did a piece for the Chicago Tribune and Janet Kidd Stewart on divorce and retirement benefits – and why I think collaborative divorce may be the single best decision divorcing couples over 50 can make. Aside from the fact that collaborative keeps your divorce civil, respectful and private, the process also works to address your immediate and long-term financial needs (including those retirement years). [Read more…]
Individuals going into a divorce property division negotiation rarely understand how just a few details can have a substantial financial affect on their future. You can avoid bad luck by having a strong grasp on the nuances of property division. The quickest and most efficient way to get this knowledge is to work with a divorce financial adviser.
- Be sure you hire one who is also a CPA. The income tax issues can be complex.
- Look for a CPA who also holds a CDFA – Certified Divorce Financial Analyst because they specialize in divorce financial issues.
- Tell your adviser everything about your property. If you are not a divorce expert yourself, you are not going to know which details are critical and which are not.
- Ask your divorce financial adviser to work up a couple of property division scenarios. You need to see how various options affect your financial outcome.
- Know that during negotiations you will need to compromise on something. Talk with your adviser about the effects of giving up on this or that option. Take notes.
- Familiarize yourself with the mediation process.