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Divorce is emotionally traumatic on everyone involved especially if there are children.  While it may seem mundane, dealing with the money and tax issues that arise from the unwinding of a life together is as important for both psychic and fiscal sanity.

In the big scheme of things, there are more important things than money.  And many who are faced with this kind of life-changing event will cope by simply ignoring the details, shutting down trying to avoid confrontation and more emotional pain. The personalities of each person involved (including family, friends and lawyers) will come out to wreak havoc.  And if someone was a submissive person, then they may become more withdrawn from the process.  Someone who was more dominant in the relationship will likely be more so.

If I’ve learned anything from years of working with people and their money, it is that money is emotionally charged.  And while it may seem satisfying to try to extract some sort of revenge for the pain by attaching a price tag to impose on the other spouse, it is more important to get to closure and strike a deal which best positions each person for moving ahead.

I’ve often said that life is a journey.  And along this journey we’ll each encounter all sorts of things.  A divorce, like any other sudden, life-changing event, is just another part of the journey.  And while we cannot plan perfectly for this or anything else, we can prepare.

So it is with divorce.

I’ve written in the past about the critical mistakes that divorcing couples will make that can set them up for financial failure now and as they start the next stage of their new life.

Dealing with the Family Home in Divorce

For many the key to the settlement is the home.  While each may want to keep the home, it may be wiser to consider other options. For some, there may be sentimental reasons for keeping the home or emotional reasons and bad memories prompting one to put physical and emotional distance between themselves and the home.

For many, the main reason to keep the home is to avoid further disruption especially if there are kids involved which might entail changing schools or at the very least dealing with a move while school is in session.

Financial Triage

Despite the pain, you will need to step up and deal with these issues.  Otherwise, there is a greater risk that the financial foundation put in place for your post-divorce journey will simply not stand up.

At the very least it is important to make sure that all legal documents properly reflect who is responsible for the debts and bills associated with the property going forward.  This means contacting the utilities to change the name on the account.  In the event that the marital home was a rental, then make sure that the landlord changes the name on the lease. Get confirmation in writing.  Otherwise, there is the risk that an unpaid bill may end up in collection and lead to a black mark on your credit report.

The same can be said for credit cards.  It’s in everyone’s best interests to contact the credit card issuer to freeze the account to any new charges.  Don’t forget about old credit cards that you may not use or can’t find the actual plastic card.  To help with this get a copy of your credit report and make contact with each listed creditor appearing on it.

For property that is owned or mortgaged, this becomes a little more tricky.  The mortgage company won’t simply release someone from the debt not even with a valid final divorce decree.

In this case the only way to get this liability off your back is to sell the property or through a cash-out refinance by a spouse who will then assume the ownership and debt solely.

And as long as you are both on the deed, then the property tax liability and even water, sewer or other municipal charges will be the responsibility of each of you.  Only when the property is sold or refinanced will these liabilities be behind you.

Keeping the Home: Will It Make Sense?

A lot of my divorce financial planning practice centers on this very question.  Now if someone insists on keeping the home, I’ll spend a lot of time modeling the impact on near-term cash flow and long-term financial security.  It is not a guarantee that keeping the property is the best option.

It may not make sense at all.  There are the costs of running a home now on one source of income.  Even if one is receiving alimony to supplement this, it may not last long.  There are the added costs for maintenance that may need to be done by outside vendors that were once done by the spouse “for free” before such as snow removal, lawn care, repairs or house cleaning.

And while there may be support payments expected as a source of cash flow to cover these costs, what happens when or if your ex-spouse is unable to pay or simply decides to stop paying? Sure, there are legal remedies.  But these take time and cost money.  In the meantime, the bills may pile up and risk not only your credit.

In some cases, an ex-spouse may continue to provide help in these areas.  But they may want to negotiate the classic side deal: Do the repair and deduct it from the support owed.  This isn’t proper and will not help your long-term cash flow. In some cases, the ex-spouse will try to claim the funds used for these repairs as part of alimony so that it can be a tax-deductible expense.  This is also flat-out wrong and distortion of the tax and divorce rules.

Selling the Home May Make the Most Sense

It may be easier and wiser to simply sell the home, split the proceeds, pay off outstanding debts, fund the emergency reserves and start off fresh without the added burden of running a home.

And while not seeming to be critical in a time of depressed real estate values, by keeping the home you risk losing out on a very valuable capital gains exclusion on the sale of property.  As long as you’re married when you sell your home, the first $500,000 in gain above the original purchase price and subsequent costs of improvements will be exempt from any capital gains taxes.

Once you are divorced this exclusion drops to only $250,000.  For those couples who bought homes several years ago before the huge run up in values, this may be a critically important consideration.

Seek Professional Guidance

Dealing with the many tax, financial and real estate issues related to a divorce can be complicated.  You may want to seek advice from someone specifically trained to handle such issues.  Not all CPAs, attorneys and financial planners are qualified or set up to help clients through this type of life-changing event.

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Black Friday is traditionally the day that can make or break a retailer’s bottom line.  But don’t let enthusiasm for the season, the sales or the advertising hype end up putting you into the Red.

Black Friday is here.  Even before you may have had a chance to digest your Thanksgiving feast or recover from a day of football, you may have already been lured into the local mall.  Maybe you were one of those early bird shoppers preparing for a marathon day of shopping at 1 AM.  (It’s not too late to consider these tips for the rest of your shopping season or to teach your kids).

I was not one of them.  I slept in and have probably missed a host of specials and discounts on every imaginable thing sold. While I don’t feel bad I know that I’ll probably be picking on the leftovers like a I will be with the Thanksgiving turkey in the refrigerator.

Although I’m not the best marathon shopper, I thought I’d share a few tips that may help you avoid turning this holiday’s shopping season into a budget-busting hole for your family budget that you’ll be paying for and digging out of long after that snazzy do-dad you bought for Uncle Charlie is lost or breaks.

Have a Budget

No one says that you have to go and take out a second mortgage on your home to buy gifts for the entire world (that’s even assuming that you can qualify for a Home Equity Loan or HELOC).

It’s probably reasonable to budget somewhere around 1% of your gross income for holiday purchases of gifts for others in your family and friend network. Unless you’re buying an engagement or anniversary ring for your significant other, there’s no need to bust the budget here – even then there are limits. (And you really should not be spending more on stuff than you’re putting away in your IRA or 401k).

Are you afraid you’ll be considered the cheap skate relative or office mate? Who cares?  Are those folks going to bail you out if you’re in financial trouble?  Do you really want to be one of the folks who’s still paying off the credit card charges you incurred for this holiday by the time you serve next year’s Thanksgiving turkey?  All of those great savings you got will simply be replaced by interest charges on the balance you carry.

Gifts are barely remembered while memories of sharing time with friends and family have more meaning to most folks.

Make a List and Check It Twice

Just like Old Saint Nick, you should prepare a shopping list. Have a written list of who’s going to be receiving gifts.  If you know them well, you can jot down a few ideas of types of gifts to try to find.  Before you even open up your web browser or step foot in the store, get this done.  Without a list you’re more likely to become an impulse buyer.

Have a Shopping Plan

Experienced shoppers know that it pays to have a plan of attack when those doors open.  You’ve been scouring the newspaper inserts (you do still get the newspaper, right?) and browsing the websites.  You’ve been in the stores before and know the floor layout.  You can bypass all the stuff you don’t need and just go straight to the department in the store where that perfect gift for Aunt Sally is.

Hey, store merchandisers know that you’re only human and easily distracted.  That’s why they’ll stack up stuff near cash registers.  That’s why grocery stores force you to walk through the entire store to get to the dairy case and that quick stop to pick up milk costs you $30 because you pick up a “few things.”

I prefer to use shopping sites that will find and compare items.  Whether you use Amazon.com or MySimon.com or a host of other shopping robots, you can narrow down the price range to expect to pay for an item.  And for the Smartphone set, “there’s an app for that.”  You can download an app that will allow you to scan a product’s UPC which can then pull up product information and comparative prices.

Consider Charity

You might want to give back instead of simply consume.  Sure, we need consumers to buy more stuff to get the economy moving again (we also need corporations to invest their $2 trillion in cash back into their businesses by buying equipment and hiring folks but that’s a different discussion).

But nothing says that you have to stimulate the economy single-handedly.

There are causes and people who need your help throughout the year and providing a donation in lieu of a gift made in China will help them, make you feel good, provide you with a tax deduction, and reduce our trade imbalance which will ultimately improve the strength of the US dollar.

Remember the Spirit of the Season

What do you really want your family to remember about the season?  What values do you want to pass down to your children or grandchildren?

Sure, it can be all about the ostentatious display of holiday lights and some of those displays are really nice and others are just way over the top.

Sure, it can be about buying the biggest, best new shiny thing.

I’m not trying to be Scrooge here. Far from it.  I believe that the holiday is about family and friends.  And more particularly, I think that playing Santa for young kids is magical – for you and them.

When I was growing up, my brother and I typically received one gift each from our parents, aunts, uncles and grandmother. And after we opened them up, our parents let us keep one toy out to play with while the others were put away so we didn’t end up overly distracted and bored with the toys all at once.

On the other hand, I remember going to a cousin’s house and they had TONS of packages under the tree.  Their parents would wrap all sorts of little stocking-stuffers – candy, marbles, even tooth paste and socks.  It was all about showing the quantity of gifts even if they were mundane, everyday sort of things.

I think that I enjoyed our holiday more and better because we weren’t focused on tearing off lots and lots of wrapping paper.

And I think that’s what I want my soon-to-be 15-month old son, Spencer, to take away as part of his understanding of the holiday and our new family’s traditions.

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Let me offer the classic unsatisfying answer:  It depends.

Before you offer your John Hancock you should understand the risks involved.

Just like any other financial decision, it’s best to try to do this without the emotion, drama and angst that can complicate a relationship.  Easier said than done, I know.

But like your investments, you should do your own due diligence and follow your own values.

Sometimes it’s absolutely necessary to get a cosigner for a loan, credit card or apartment lease.  The best terms are offered to those with the lowest credit risks.  A credit card issuer, mortgage lender or landlord will rightly offer someone with an established good credit history and deeper pockets a whole lot better set of terms than a newly minted college grad or someone with a bunch of blemishes on their credit report.

I remember a favorite uncle of mine.  He was single, very responsible with money, a great saver.  He once went to buy a car but needed a younger nephew to consign for him for the auto loan because our uncle had no established credit.  He had paid cash for everything all his life making him an invisible man to a loan underwriter.

I also remember once walking across campus and a friend stopping me as I passed the financial aid office.  He asked me for a favor.  He needed a cosigner for his student loan and it was my lucky day to be the guy to help him.  Don’t worry about a thing, he told me.  I’m good for it, he had said.

Luckily he was but that’s not always the case.  The FTC reports that three out of four cosigners are asked to pay because the primary borrower hasn’t.

Know the Risks

There are risks in life and in every decision we make.  It’s not a matter of avoiding all risks but managing them, understanding them. Don’t just think that you can walk away once you’re on the hook for the loan.  Just because your signature may not appear first doesn’t mean that you won’t be the person they turn to collect the debt.

Landlords typically require a parent to cosign on an apartment for a child.  They know if the kid skips or the keg party gets too wild that Mom and Dad will not want to risk their good credit and will be there to cover the bill.

Remember that each loan or credit card you have will have an impact on your own credit score.  The payment history and amount utilized compared to the maximum line of credit can have a potential adverse impact on your own credit score.

And the amount of the debt will be counted as if it were your own.  This may make it difficult or impossible to get a loan when you need one.  I had a client who had cosigned for a car loan for her adult son.  The son has made every payment on time.  But when his mom applied for a home equity line of credit the car loan fixed payment was included in calculating the underwriter’s debt ratios.  Combined with her other debts it was enough to push her over the maximum qualifying debt ratio allowed resulting in a loan decline.

Put Yourself in the Lender’s Shoes

If you treat this like an investment or a loan, you should be prepared to ask questions.

You should be asking the same sort of questions that any would.  Why do they need the money?  What’s the default risk? Can they afford the debt?  How will they manage to pay it back?

Curb Your Enthusiasm … Set Limits

Like all financial decisions, consider the risk and find ways to limit it.

For a credit card you can request that the limit be set low so that the card can only be used for emergencies and not big ticket discretionary purchases that will leave you on the hook.

For apartment leases with roommates, make sure that all the parents are also listed on the lease so you’re not the only one that the landlord will call when there’s a problem.

For other large ticket items requiring a loan, consider being listed on the title for the car for example.  If there is a default, you’ll have the right to sell the car.

At the very least you can ask to receive duplicate statements so that you can monitor that payments are being made as promised.

For larger loans like a mortgage, you may even want to consider offer your help in the form of an intra-family loan.  There are services that will manage the payment processing so that it avoids getting ugly if there ever is a payment problem.  Just remember that if you choose to lend a hand to someone to buy a home in this way, they will need to declare it on the application as a debt and they’ll have to qualify for the new loan with this payment as well.


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The entrepreneur was being interviewed after a long life.  He had made it through the Great Depression and was looking back.  As he warmly reflected, he straightened up and with a twinkle in his eye told the world the secret of his success.

“It was really quite simple.  I bought an apple for five cents, spent the evening polishing it, and sold it the next day for 10 cents. With this I bought two apples, spend the evening polishing them and sold them for 20 cents. And so it went until I had amassed $1.60.

It was then my wife’s father died and left us $1 million.”

Sudden wealth is certainly one way to make it.  And the lottery is another.

But in reality most of us will need to rely on the principles of growing your wealth slowly.

It may not be sexy and exciting to talk about but over time there are certain principles that will work:

  • Living beneath your means
  • Consistently saving
  • Responsibly using credit
  • Protecting your assets, life and income with appropriate insurance
  • Investing in a broad, diversified mix of assets

Of course there are lots of specifics that need to be tailored for each individual and to reflect what’s going on in the world around us.  From year to year specific investments may need to be changed just as you might change the drapes or the color of your house. But the overall process of building and preserving wealth depends on the foundation you build. And like your house, you want that foundation to be solid.

Over the next several posts I’ll continue to explore the most common mistakes that investors make and how you can avoid them.

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We live in a sea of credit, credit cards and debt in general. It’s the lifeblood of our economy and personal finances.

Now with recent legislative changes having taken effect in February, it’s time to reassess the credit cards we carry and make the most of them while avoiding any nasty bites from behind.

Cardholders have been receiving disclosures in tiny print from their credit card companies for a while now. But most of us ignore these densely worded forms. But there are hidden traps in them.

Sure, the card companies are not supposed to arbitrarily increase your interest rate on existing balances and it cannot apply payments to the lowest interest rate balances first.

On the other hand, the privilege of having a card will now likely cost more: the return of annual fees, inactivity fees and even fees if you use the card but not enough.

You could consider closing out the cards you don’t use. But remember that will likely have a negative impact on your personal credit score. One of the factors that a credit score is based on includes the longevity of an account and you could inadvertently be hurting your score by closing out an account that you don’t use. It may make sense to use the card for a few transactions to meet the minimum. But plan on paying these charges off in full each billing cycle.

If you do happen to carry a balance, then consider replacing your BIG BRAND card with one of the smaller competitors. These card issuers may offer better deals, lower rates and lower fees, too. Start with a credit union or smaller, local bank by logging onto FindACreditUnion.com.

To compare your existing cards and find other deals, you may also want to check out CardRatings.com or Savvy-Discounts.com.

Considering a balance transfer? Watch out. Big banks are moving to up the fee from the average of 3% of the balance to 5% and eliminating the dollar cap. Look for banks that will do such transfers and cap the total fee.

It’s your money and the one certain way to get ahead is to control the things that you can control. And by watching the details regarding your credit, you can control your costs. Put more into your pocket by reducing the bite from your plastic.

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