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Even When a Spouse Dies, Debt Lives On
By the Financial Planning Association
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The death of a loved one is a paralyzing event. Many survivors find it difficult, if not impossible, to start dealing with the financial afterlife of a spouse even if they have planned extraordinarily well.
Consider then, the one single element that can turn this difficult process into a lengthy nightmare and potential financial disaster for a surviving spouse – the deceased’s outstanding debt.
Married couples -- particularly those who hold credit cards jointly and keep month-to-month balances on them – really need to pay attention. And we’re not simply talking about elderly spouses - a spouse can die at any time.
The earlier a married couple focuses on the joint issues of credit management and estate planning, the better. You and your Capital Advantage, Inc. advisor can tie the necessary elements of estate, retirement and debt planning together since these areas are essential to ones financial health.
While the following information can be a guide for individuals who have lost a spouse, it is a much better guide for couples in good health who want to alleviate major financial problems for their survivors later on.
Remember, the worst time to deal with joint or separate credit issues is after the funeral.
Some key points to consider:
Joint credit in moderation…or not at all: If spouses have separate credit, then their rating will not be affected by the spouse’s bad credit behavior (late payments, charge-offs, bankruptcies, etc.). Joint credit leaves the surviving spouse with a total obligation for any debt remaining on a car loan, credit card, mortgage or any other kind of debt.
Watch those “additional card” offers: It might seem like a great idea for both spouses to carry credit cards on the same account, but in death, outstanding balances are often treated the same way as joint account are. It is not unusual for an issuer to come after the holder of the additional card for that outstanding debt.
They will find you: You have never met Big Brother until you have tussled with today’s toughened-up lenders. Particularly, as problem credit has grown to epidemic proportions, credit card companies in particular have become better about determining whether customers have died so they can make a claim against the deceased’s assets. Most states have specific laws that put a timetable on a lender’s ability to make claims against an estate, and executors may have certain responsibilities under those laws to inform those creditors. A planner or estate attorney can help you go over those requirements in your home state as you are addressing your estate, retirement and debt issues.
Keep in mind that keeping separate credit will not protect estate assets: Granted, a deceased partner’s bad credit may not affect your ratings on your separate accounts, but creditors will go after the assets of your shared estate to settle up. So what is the message here? Keep debt under control at all times.
If the worst happens, what is the process? It is important to contact all lenders immediately to let them know your spouse is deceased. Here are several reasons why: First, identity thieves are getting more sophisticated about checking death notices and tracing that information to their credit accounts. Dealing with a deceased spouse’s debt is one problem. Dealing with an identity theft calamity based on your spouse’s accounts is even worse. Also, if you do have joint accounts, ask the issuer if it will issue the card in your name only, and keep in mind that you will still need to maintain payments on those balances to preserve your credit rating as a single person. Lastly, lenders tend to look at customers suspiciously who fail to make disclosure of a spouse’s death. So, no matter how tough things are, you need to make these calls.
What about the last joint accounts? For joint accounts, removing the deceased name from the account should have no impact on the survivor’s credit score, but the survivor should think twice before he or she closes the account, because it cuts back the amount of credit available to the survivor.
Eliminate debt: Debt-free is the best way to go through any crisis. Couples should strive to be debt-free not only for the good times, but for the bad ones as well. |
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Dealing with Companywide
Pay and Benefits Cuts
By the Financial Planning Association
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Even as the economy shows a few glimmers of improvement, most economists expect some continuation of job, pay and benefits cuts to continue throughout the year. What can you do about these moves, even if they are still in the rumor stage?
Hold a family meeting: Talking about money issues is a delicate balancing act between teamwork and fear, but there are already plenty of TV commercials showing Mom or Dad losing their jobs and kids rising to the occasion. As awful as economic circumstances have gotten, there is a spirit of teamwork in the air, and families should harness it. Sit down, discuss what is going on, and solicit suggestions equally on the best ways to conserve excess and luxury spending, save more money on essential spending and find an appropriate treat for everyone when trouble lifts. If your kids are working age, let them get a job to help with their expenses as long as it does not negatively affect their schoolwork.
Get some advice: Do not wait until a crisis descends to get some useful strategic advice. Schedule some time to meet with your Capital Advantage, Inc. financial advisor to discuss your financial issues. We can also help you shore up your retirement investments if your employer decides to alter its traditional pension plan, or cut or eliminate matching contributions to your 401(k).
Create a budget and stick to it: Whether you build one in a family meeting or in front of a computer screen by yourself, it is time to budget. Analyze every cent of spending, build a budget of mainly essentials and a few scheduled treats and swear to live by it to the letter until your employer restores pay and benefits, or you find a new job. When better times return, do one more thing – see if you can still stick to that budget so you can accumulate an emergency fund and additional savings. You will be in a much better position when the next downturn occurs.
Boost cash flow through simple withholding changes: Talk to your tax professional about whether it makes sense to boost your withholding allowances to make up for that percentage of lost pay. If you find you are claiming too many allowances, you can send in an additional tax payment later.
Renegotiate what you are paying for insurance: If you have an emergency fund, raise your deductibles on home and auto insurance so you can save on premiums. If your car is old, consider dropping that collision coverage and make sure you have your policies consolidated with one carrier to save money. One more thing to consider – do you absolutely need that extra car? Selling it and car pooling or shifting to public transportation can save you thousands a year.
Start haggling over bills and fees: Sick of that cable bill? Either cancel it or tell your provider you’re going with a competing satellite or phone-based TV network and see if you can get a lower rate. Start pre-shopping all purchases online, and if you buy online, use discount codes to save money on your purchase and on shipping. Start asking about pricing on elective medical procedures among a range of doctors. Wherever you buy a product or service, make it a policy to see if there is a cheaper way to do the transaction. The worst thing the merchant, company or professional can say is “no,” and you can choose whether to stick with them or go elsewhere.
Refinance your mortgage: While rates are low, lock in a rate to reduce it by a percentage point or more - this can save $200+ off your monthly payment. You might gain some tax advantages from that move as well. If your employer is cutting its match to your 401(k) plan, apply the savings from your monthly mortgage payments to your 401k plan or contribute to an IRA or savings account.
Downsize your home: If you can sell your current residence, this might be a good time to downsize into a smaller home that gives you more equity and a lower mortgage payment.
Start buying used: Can you really tell whether someone wore that blouse that originally cost $300 that you picked up for $15? Are used DVDs that much harder to watch than new? Start getting familiar with Internet auction sites, local flea markets, consignment shops and thrift stores to find ways to stretch your budget farther.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations.
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2Q 2009 Investment Management Report
By Capital Advantage, Inc.
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After igniting fears of another 1930s-style depression, it appears that government efforts to liquefy the financial system have been successful, and the economy appears to be stabilizing. Nevertheless,
the United States and much of the industrialized world still finds itself in one of the deepest and longest recessions of the post World War II era.
After a harrowing 18-month stretch in which equities fell by more than 50%, the relief rally that began in March seemed to change consumer sentiment overnight, and continued unabated throughout the second quarter of 2009. Stocks posted their best quarter since 2003, and the Dow
returned close to 12%, the S&P 500 roughly 16%, and the NASDAQ about 20%. Global markets performed even better; the MSCI-EAFE was up 25% and the MSCI Emerging Markets rose a
whopping 34% - its best quarterly performance ever. Digging deeper, small capitalization equities outperformed larger companies – possible a good sign since small capitalization stocks have taken
the lead in 12 of the last 15 bear market recoveries. While growth stocks showed a slight edge over value stocks, the recent rally did not favor either investment style.
Ben Graham, the father of value investing (and Warren Buffet’s mentor) once said that in the short-term, the market is a voting machine, while in the long-term it's a weighing machine. Implying that sentiment often drives market rallies, in the long run, it is fundamentals (earnings) that drive
sustainable advances. Fundamentals in the marketplace today haven't caught up with the technical rally that we got in March. And while we gladly accept the gift of a market advance, we continue to feel that a cautious approach to equities makes the most sense at this time. With stocks up so strongly since early March, it may require a succession of favorable developments to justify current market levels. Investors remain cautious, fearing that they might have been too optimistic in their expectations about how soon the economy can recover from the recession that began in December 2007. The market reached a plateau in mid-June, mainly holding on to the gains it notched this
spring, but desperately needs more confirmation of an economic recovery before moving higher again.
We continue utilization of our reduced equity exposure (which has been benefiting our portfolios), while remaining over-weight in fixed income. We also continue preparation for the inevitable shift
back into equities, which will most likely focus on dividend yielding funds, small capitalization funds (smaller companies usually have little debt and faster growth rates then larger companies), and commodity funds, which move opposite of the U.S. dollar, providing a hedge against inflation and experience price movements often non-correlated with U.S. stocks. We have increased our international equity exposure with a reasonably low risk emerging markets fund, also providing
hedge against a decline in the dollar and a solid investment in countries with little or no debt. While our monitored investment triggers indicate we may see a potential equity entry point before year end, in the interim, our current strategy continues to reward us.
As always, Capital Advantage, Inc. is here to answer your questions, address your concerns, and explain in further detail our investment strategy and current plan of action. We thank you for your continued trust and confidence.
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Contact Us
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John Hayman, CFP
Founder & President
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Donna Zinman
Senior Financial Advisor
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Gary Clarke
Senior Financial Advisor
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Rick McNamara, CFMC
Director of Investments
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Dawnalizabeth Henke
Chief Compliance Officer
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Catherine Norris
Manager of Client Service
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Aimee Schwartze
Director of Client Service
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Amy Montano
Office Manager
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