FINANCIALconnection
‘Til debt do us part
AskSuze
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Suze Orman’s latest
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My husband became self-employed
in 2000. In August 2004, he took his
company to a debt-reduction program, where all of the company credit cards
were placed.
In May of 2005, we were divorced, and
in the divorce decree my husband took
responsibility for all of the business debt.
He successfully paid on them until this year;
however, recently I have been receiving
collection calls for him and his business
credit cards.
My question is, because Washington is a
community property state, can these creditors come after me for his debt?
—J.P. Shulliman, Tri Cities, Washington
KEI TH LATHROP
IT’S BEST TO consult a lawyer with expertise in
divorce law in your state. That said, as a general rule,
assets and debts accrued during a marriage are considered the responsibility of both spouses, whether
you are in a community property state or not.
One of the mistakes I see divorcees make is that
they rely on the divorce decree as the “final word.” In
fact, you need to take steps to formally remove your
ex from any financial agreements and documents.
That’s why I say all joint credit-card accounts need
to be paid off in full and then closed down, and why
anyone who receives the home in a settlement needs
to refinance in their own name as soon as possible.
When an ex remains on the title or user agreement
for any financial product, that’s a recipe for problems down the line.
I have received Social Security since I turned
62 and was still working. Now I am 70 and
have just lost my job. The money I receive
every month does not cover all of my expenses. I have an $88,000 15-year mortgage.
I have a $200,000 annuities investment and
a very small 401(k).
Should I pay my mortgage off with that
money and be debt-free, or continue withdrawing money from my savings to cover
my expenses?
—Hortensia Hernandez, Pembroke Pines, Florida
I THINK IT is smart for you to use $88,000 of your
annuity to pay off your mortgage. I am guessing that
$88,000 invested in your annuity earns about $4,400
a year or so in income, assuming a 5 percent return.
That works out to about $366 per month. At the same
time, I bet your 15-year mortgage runs you about
$770 a month. So the income generated by $88,000 in
your annuity is about $400 less a month than what
you need to cover your mortgage payment.
If you have after-tax money invested in the annuity (meaning you won’t get hit with a big tax bill on
withdrawal), then it can make a lot of sense to withdraw money to pay off the mortgage. Combine the
income generated by the remainder of your annuity
with your Social Security and 401(k) and you could
be in decent shape, considering we have eliminated
your single biggest expense: your mortgage.
I also encourage you to look into a reverse
equity mortgage if you find you still are coming up
short each month. A reverse mortgage will pay you
income as long as you stay in your home. If you have
access to a computer, AARP (
www.aarp.org/money/
revmort) has good information about how reverse
mortgages work.
I am married, own my own house and have
two children ( 6 and 5 years old). I want to
invest for my kids’ education and for their
future. What do you suggest?
—Mike Bali, Sacramento, California
THE BEST WAY to take care of your kids is to make
sure you first take care of yourself. By that I mean
you and your wife must make saving for retirement
your first priority. That is not selfish. It is smart and
loving. If you put all of your funds into your kids’
educations and that leaves you short of money in
retirement, here’s what is going to happen: You will
need to lean on your grown kids for financial support. I don’t think that’s the future you really want
for them, right?
After you get your retirement saving all set, if
you still have money available to invest you should
look into 529 savings plans. These are the single best
way to save for college costs. You can learn more at
the Web site
www.savingforcollege.com.
My husband and I own a home together, but
we both have debt. I have $43,000 in a money market fund. I have about $25,000 in debt
(school loans, taxes owed to the IRS, credit
cards). What do you advise as a way to get
rid of that debt fast?
—Tam Campbell, Bartonsville, Pennsylvania
IT MAKES LITTLE sense to be earning 4 percent or
so in a money market fund while you are paying much
higher interest rates on all of your debts. Use the
money market fund to get out of debt. But you’re not
off the hook yet, my dear. I want you to behave as if
you still owe monthly payments to the IRS, the credit
card company and on your student loan, and make
those payments back into your money market
account. Keep this up at least until you have replenished your money market fund with the $25,000. C
