I remember it like yesterday. Sitting at home, taking care of our not-yet-two-year-old, when my now ex announced that we were facing foreclosure. The words did not compute initially, because I did not know how that was possible when he made six figures in the prior year. After all, I had the tax return and bill saying that we owed $20,000 for unpaid income taxes. Perhaps, that should have been my clue that something was bad in the water in Texas. Nevertheless, I was dealing with my own issues. I had just had a baby and I was recovering from a serious bout of post-partum depression. The last thing I thought I had to worry about as the happy, upper-middle class, stay-at-home mom, was that the person who was supposed to be bringing home the bacon was in fact not even throwing fake bacon bits to the mortgage company. It never crossed my mind that though the home loan was solely in my name, I should be covering my back in case I found out one day that the mortgage was so far behind that the only thing that could “save us” was to declare bankruptcy.
Being the good spouse that I was, I agreed that it was absolutely okay for me to file bankruptcy, by myself, so that I could save our home- and my ex’s image. Besides, as was said during this blindsiding conversation, my credit did not matter because I was not working. Notwithstanding the fact that I was an attorney and persons who employ attorneys carefully scrutinize credit reports for history of bad behavior. All that mattered was to save the home, sell my possessions while we kept his toys, and make sure nothing happened to the breadwinner’s good name. I wish I had known then what I know now.
As a former family law practitioner, I frequently encountered persons with similar issues. Many times, I was called upon to offer advice, and/or direction, on how to obtain critical information that protects the family, and its individual members, in financial matters other than divorce and child support. The following is a list is of the common financial issues couples encounter and need assistance addressing. This matter is particularly critical for stay-at-home moms and other married women who do not work outside the home.
1. Account Access
Do both parties have easy access to all information on all financial accounts (this includes banking, investment accounts, credit cards, mortgage or auto loans, etc.)?
In order to protect both parties in the case of a life altering event such as incapacity or death, both parties should have a copy of every page, of all documents relating to any financial account that is held in either spouse’s name. All documents includes:
- The company’s name, address, and the account representative (if applicable)
- A copy of the Original application
- Any and all addenda to applications
- Any and all communication from the company or person securing the debt
- Any and all legal notices sent concerning the debt
- Any and all financial statements regarding the debt
Please note that this is not an exhaustive list. Further, in addition to the two hard copies that you have, you may want to consider scanning the documents and saving them to a USB drive and sending them to your email address and the email address of a family member, friend and/or attorney in case something should happen to you and the information is needed.
2. Separate Bank Accounts
Do you and your spouse have separate bank accounts? If so, do you have a Pay-on-Death, Statutory Durable Power of Attorney, or other type of arrangement, that will facilitate your spouse being able to easily access the funds upon your incapacity or death?
If you and your spouse have separate accounts, in the event of death or incapacity, you will have neither quick nor easy access to the funds if you do not have something in place to give you legal access. Some of the options you may exercise:
- Payable on Death (POD) Account. This survivor still has to go through the burden of obtaining a death certificate for the financial institution, however, it is quicker than having to go through the probate process in order to access needed money.
- Statutory Durable Power of Attorney. This document gives your spouse the power to make financial decisions on your behalf in the event of incapacity. The power may be as broad or as narrow as you choose.
3. Pay-on-Death Accounts
If you have any separate banking accounts with debit cards, have you exchanged pin numbers with your spouse in the case of a financial emergency? This is something that you may want to consider, because it comes in handy right after a death if- and only if- you have a Pay-on-Death clause on your account.
When you have separate accounts, obtaining a debit card and exchanging pin numbers with your spouse is the best choice in the case of your death or incapacity. When you have performed this action along with providing a POD and/or Statutory Durable Power of Attorney, it provides your spouse with the ability to limit the amount of contact with the financial institution holding the account and makes the process for receiving funds faster and less painful.
4. Undisclosed Accounts
Do you have any accounts (i.e. credit cards) of which your spouse has no knowledge? If so, do you live in a community property state? Did you include your spouse’s name on the application?
If you live in a community property state, you are responsible for your spouse’s debt- period. In the case of divorce, even if you did not know about the debt and the divorce decree holds only one spouse accountable for the debt, if the responsible party does not pay, you are responsible to pay the debt. The creditor is not bound by a divorce decree. Further, consider checking your credit report monthly to verify there are no accounts in your name to which you did not apply. If there are accounts, you have the right to ask the creditor to cancel the account. If the creditor will not cancel the account, even if your name is removed, you are still responsible for the debt.
5. Life Insurance
Do you have enough life insurance? The amount of insurance you have depends upon your estate planning goals, life style, and personal philosophy on passing along wealth. That being said, if insurance is one of your major estate planning tools, it is crucial that you obtain the correct amount.
When making life insurance decisions, it is important to do the following:
- Calculate your debt. Please note that creditors CANNOT take money from a life insurance policy. Life insurance is a contractual agreement that occurs outside of probate. The money passes to the beneficiary outside of the probate process. If, however, you desire to have all your debts paid to ease any post-death creditor harassment your heirs may receive, you need to know the total amount.
- How much money will it take for your spouse to maintain the current lifestyle while he/she adjusts to your loss of income?
- How long do you want to give your spouse to adjust to your loss of income?
- Do you have any children?
- How old are your children?
- Do you want to leave anything to your children?
- How much do you want to leave to your children?
- Do you want the insurance to cover college tuition costs? Do you have other accounts in place that are being used to cover college tuition?
- What type of policy do you want? A whole life, term, convertible term, etc?
- Have you talked to a financial planner and an attorney about life insurance and alternative methods of estate planning?
If you are a married, non-income earner, in the event of one of the “Four D’s”- your spouse’s death, disability, discharge from employment, or divorce- it is vital that you know your family’s current financial state. Moreover, if more security is desired to help defend your family in the case of a financial crisis, starting an income-producing activity may be a viable option.