Family finances shouldn’t be a secret

Mindelle Jacobs of the Edmonton Sun, on the importance of sharing financial information:

Marie got the shock of her life at a routine mortgage renewal meeting, when her husband told the bank manager he’d racked up $22,000 in credit card debt.

“I had no idea,” recalls Marie (not her real name). “I would never have guessed it was that much. My blood pressure went up.”

That one spouse would hide extravagant spending habits from another is no surprise to family lawyers. Arguments over money are probably the biggest stressors on relationships.

When a saver marries a spender or when there’s no reasonable compromise on money management, the consequences can be dire – insistent creditors, bankruptcy or divorce proceedings.

“In my experience, it’s probably more common than not that a spouse doesn’t know every financial detail (about the other spouse),” says Marla Miller, an Edmonton registered family mediator and collaborative family lawyer. “It’s very rare that both spouses . know absolutely everything.”

Grant Gold, head of the family law section of the Canadian Bar Association, agrees. “It happens more often than you would think – that people run separate financial lives.”

The Toronto lawyer says he recently settled a divorce case in which the biggest stumbling block was that the husband didn’t know that his wife had accumulated $60,000 in debts.

“It’s relatively common. It speaks to problems in the marriage. And it speaks to the need for couples to communicate in advance about things like that,” says Gold.

Via @MarlaGilsig.

No sympathy from me

I feel bad for many fathers who are caught up in the machinery of child-support enforcement, but not this guy:

A St. John’s man says a provincial law aimed at dead-beat fathers is excessive.

Alastair Collis said it’s unacceptable that authorities have garnisheed his mother’s bank account.

“Why would they attack a 90-year-old woman? It’s elder abuse,” he told CBC News.

“They just can’t go just stopping your driver’s licence, your passports, your account and all that. And now, I don’t care what they do to me, they can throw me in jail, I don’t care but you don’t touch my mother.”

Newfoundland and Labrador’s director of support enforcement has declared Collis in default of payments and garnisheed his bank account and because Collis’s name is also on his mother’s account, that has been garnisheed as well.

According to Collis, he has been paying his child support.  It’s just that he refuses to pay through Newfoundland and Labrador’s support enforcement agency:

Once a court orders a divorced parent to pay support for children, the payments are made to the director of support enforcement, who then ensures the payments are passed on to the children.

Collis refuses to go through the director and said he doesn’t see why he should.

He said he’s a good father who regularly makes payments to his two teen-aged daughters in Toronto.

Collis is calling on all provincial party leaders to study child-support laws and have them rewritten.

In Nova Scotia (and back home in Newfoundland, I presume) the parties can agree that payments will be made directly to the recipient, though such orders often contain a clause giving either party the option to enroll in the Maintenance Enforcement Program.  As a rule, I recommend to my clients – payors and recipients of child support – that they make their payments through the Agency.  The recipient will know how much is owing, and the Program can enforce the order through garnishment of wages and bank accounts; the payor, meanwhile, will have documentation showing how much he has paid.

As for Collis, if he’s telling the truth and he has been paying child support, he should be able to make a court application to reduce or eliminate his arrears, and remove the garnishment order.  But it will cost time and money, and he may have to dig through years of bank statements and cancelled cheques to show how much he has paid.

That’s a high price to pay for making some kind of point, isn’t it?

Don’t cosign that loan

Econoblogger Megan McArdle explains why cosigning on a partner’s or relative’s loan is almost always a very, very bad idea:

I mentioned in my last post that cosigning loans is risky.  How risky?  According to the FTC, depending on the type of the loan, as many as three out of four primary borrowers default on their obligations, leaving the cosigner to pay.  This is, after all, why they need a cosigner: they’re not good credit risks, either because they have too much debt already, or because they don’t pay their bills on time.
[…]
If you think that they really need the money, and that you’re not just helping someone dig themselves even deeper into financial irresponsibility, then my advice is to just give them the money.
Give them the money?  I can’t possibly afford to do that!
Well, my friend, given the default rates of primary borrowers, that is what you’re doing when you cosign–with the additional cost of origination fees, interest payments, late fees, collection fees, a black mark on your credit report, and probably, a destroyed relationship.
When the primary borrower defaults, you’re on the hook, not just for the loan, but for any late charges or collection fees that may have accrued.  If it’s a car, the repo man will sell it for cheap at auction, and then sue you for the difference–there are no “non-recourse” auto loans.  Meanwhile, your credit will be trashed.  Contracts don’t always include notice requirements for the secondary borrower, so you may not even find out about late payments until it’s in collections.
Even if they pay, the full amount of the outstanding loan will be counted against your debt-to-income ratios for the purposes of both calculating your credit score, and obtaining loans for yourself, since after all, you are responsible for paying it off.  That may hamper your ability to get a mortgage or other financing.
If you can’t afford to pay off the loan, then–no matter how much you love them, how great your need, or how much you want to believe they will pay–you must “just say no”.
Read the whole thing.  After the breakdown of a common-law relationship, debts accrued by either party are not necessarily divisible – but it seems like every such case I’ve worked on involves one party co-signing a loan for his or her ex, and now finding out the hard way that they’re on the hook for it.

Keep those statements

Some advice for the recently separated: if you have debts in your name (or held jointly with your ex-spouse), keep your statements immediately following the date of separation, and provide copies to your lawyer at your first meeting.  There might be a less satisfying task than calling credit card companies to request copies of statements from two or three years ago, but I haven’t thought of it yet.  (Attending a Cleveland Cavaliers game, perhaps?)

Until your matter is settled (or the Judge has made his or her decision) hang on to subsequent statements as well. Usually, debts incurred after separation are not divisible, but there are exceptions to that rule – for instance, if you pay for improvements to the matrimonial home before it is placed on the market, that may be taken into account when the time comes to divide the proceeds of sale.

A huge file can be overwhelming for the lawyer and the client, but as a rule, it’s better to have too much documentation than too little.