With Credit Card Debt Mounting, Tips to Help Married or Divorcing Couples
First came the mortgage crisis, then the banking crisis and now experts are predicting a credit card crisis is in the making. That crisis could push some couples over the financial edge. And the combination of financial pressures, job loss or high credit card debt may well make for a perfect storm when it comes to a couple’s uncoupling potential.
“This economic crisis is going to hurt everyone, even the well to do, especially those living on investment capital. As far the middle class: there will be no wiggle room financially anymore and the lower class may wind up on the streets. I do not believe anyone will go unscathed in this horrific economic crisis and marriages will suffer, whether a person is trying to make this marriage work or trying to survive a divorce,” said California attorney Stacy Phillips, author of the book “Divorce: It’s All About Control How to Win the Emotional, Psychological and Legal Wars.”
Phillips is among a growing number of financial and relationship experts from around the country whosay they’ree seeing more and more couples in financial trouble, and that can turn into emotional trouble and potential divorce in the making. One or both are often more anxious and worried, which leads to more irritability and less tolerance. “Couples are preoccupied and not as emotionally available to work on their issues,” said Phyllis Goldberg, a California marriage and family therapist and co-founder of hermentercenter.com, a site that helps divorcing women.
“Credit card debt is the next crisis facing our country. We are in credit card debt in the billions and, there didn’t seem to be an end in sight,” said Andrew Bernstein, a certified credit counselor with the Florida-based debthelper.com. “For a couple whose debt has mounted, whatever the reason Many times the first reactions are fear and a sense of panic, particularly if the collection calls have started. That will be followed by the question, ‘What do we do now?’,” he said.
“Credit card debt produces increased tension on a couple, especially younger ones who have not had a lot of experience in this area,” he said. “Having been in the credit counseling industry for more than 10 years, observations would indicate that financial tensions are a huge factor in separation and divorce.”
Given the current economic crisis and its widening reach, “Those couples who do not know how to talk about money in a productive way will be much more stressed and resentful, which will increase the likelihood of divorce,” said Tina Tessina, a California psychotherapist and author of “Money, Sex and Kids: Stop Fighting about the Three Things that Can Ruin a Marriage.”
“If one party is not honest with the other party, it can cause a rift,” Phillips said. “For instance, going into a store or restaurant and having your card declined can be a very humiliating experience. If your mate has this experience because he/she thought the credit card was under its limit and you ran it up without disclosing that information, the fur might fly.”
“In addition, if your mate cancels the card and does not tell you, that embarrassment in the store that could have been avoided will undoubtedly cause significant problems in your relationship,” Phillips said.
Finally, “… if you are outspending your income, and putting additional purchases on credit cards, that can take a real toll on the relationship,” Phillips said.
“Couples need to tackle these credit card issues head on during these upcoming tough economic times. If not, it could cost them what was once seemed to be a perfectly good marriage,” she added.
“Often,” Bernstein said, “the bill-paying spouse will get blamed for the credit card debt by the other spouse, who may not have known the couple’s financial picture. “That will tend to lead to one blaming the other for not keeping up with things,” he said.
“If one spouse loses a job or a medical issue arises that causes debt to mount, the situation can exacerbate other problems the couple might be having,” Bernstein said.
“If you’ve lost your job, you’ll need to make an emergency plan, perhaps taking a job that’s less than you want, or a second, weekend job to make up the difference. Drastic times call for drastic measures,” Tessina said.
Bernstein cautioned credit card users to pay attention to what they’re spending: “What all consumers need to realize is that credit cards are not free money. Most cards are not interest-free, and there are several ways that the interest can increase that consumers are not necessarily aware of, such as when there are late payment- or over-the-limit penalties. Interest can increase dramatically. This can totally throw off a couple’s budget. For example, let’s take a couple that has four cards and are paying the minimum payments of $25. They have budgeted for $100 a month for their credit card bills. If they get a late fee, that would double on average, and if there is an over-the-limit fee, that would triple it. Now instead of $100 per month, there goes to $300 or more because of the increase in interest”.
“This is the time to sit down and talk about money in a serious fashion and make a plan. If you’ve been living beyond your means, learn to budget and bring your spending under control. This isn’t easy, but you’ll feel better knowing the problem is being solved,” Tessina suggested.
California financial advisor Ginita Wall, who lectures on the topic “What Women Need toKnow about Divorce,” said, “credit card defaults by couples often lead to bankruptcy.”
And that can make divorce more difficult, experts say. New Jersey certified public accountant Noah Rosenfarb, said, “One of the recently popular seminars for family attorneys is ‘Divorce or Bankruptcy: What should they file first? This is a hot topic among family attorneys, as most are worried about whether clients that want to get divorced can actually afford it .Aside from legal fees, many couples have to clean up their joint credit card debts, sell a house that may not be worth more than the mortgage, and then figure out how to afford to live in separate households when it was tough to pay the bills living together.”
Who’s most likely to get divorced?
“Couples who have been married for seven to 10 years are more apt to divorce,” Phillips said. “Maybe dad has lost his job or his income is reduced as a result of the economic downturn while mom left the workforce to raise the kids. In most of these scenarios, the couple owns a home, has some pension plan funds accumulated and a very high lifestyle. But in a divorce, the house will go, the lifestyle can not be sustained and mom who was staying home to raise the children will need to go back to work. But after five to seven years out of the work force, what can she do and where can she get a job, even if she has a professional degree. These couples are not willing to stick it out, they see life as short and a future that hopefully includes a new mate who treats them better.”
But not every married couple that faces them will end their relationship in divorce court.
“I have found that those married for 25-30 years or more will stay in the marriage in order to keep the house (so it doesn’t sell at a lower price) as well as hold on to stocks, bonds, and other investments until the values are back up,” Phillips said. “This group tends to ride out a bad economy rather than suffer great financial losses. If these couples are not miserable and can share the same quarters, staying together can be a viable option. During a downturn in the economy, the time is never conducive to splitting assets.”
Bernstein agreed, adding: “In situations where there has been teamwork and solid communication on all fronts, the storm can usually be weathered.”
“If there’s no domestic abuse in the marriage”, Goldberg said she recommends that couples make a decision to divorce at this time. “…With the stock market and housing prices depressed, many are not able to separate mainly because of their shared economic situation. And, of course, where children are involved the costs and circumstances are always more complicated,” she said.
Wall cautioned married couples with mounting debt who are considering getting uncoupled. “Divorce doesn’t cure financial troubles, it exaggerates them,” Wall said. “If you are struggling financially, it is better to work through the issues together rather than fighting about them and blowing the marriage apart. To paraphrase an old saying, whatever doesn’t kill the marriage will make it stronger.”
Given the combination of financial issues couples are now facing, Bernstein said he’s been seeing a growing number of couples try to work them out — together. “I am hopeful that these crisis’ may help pull couples and families together, just as in times of war. We as a country are in a struggle to continue as a major player on the world stage and as always, other countries look to us to lead. I believe that we can rise to that challenge and find new and innovative ways to resolve our financial difficulties. This will not come without a price and without sacrifice.”
TIPS FOR MARRIED COUPLES DEALING WITH CREDIT CARD DEBT
Andrew Bernstein, Senior Certified Credit Counselor, Debthelper.com
1. First and foremost, communicate with each other.
If you’ve had a financial plan in place and something went wrong, no matter what, talk about it. Do not try and hide things or just hope it will work out. Most of the time two heads are better than one.
2. Don’t panic.
If you are physically and emotionally healthy, you should be able to work through temporary financial crunches.
3. Talk to your children.
If there are children involved, make sure you are clear with them that there is a problem, and it is up to the entire family to help during the crisis.
4. Fixing it takes time.
Understand that it probably took awhile to reach the present crisis and it will not be resolved immediately. It will take a long time to resolve your situation.
5. Seek assistance if you need it.
Remember there are several ways to resolve your situation, but the best is using professional services such as a credit counseling company. (Always do research first and make sure that the company is a non-profit company that uses certified credit counselors only. Also, make sure that they are charging reasonable fees for their services) You should not feel embarrassed by seeking any help. Think in terms if someone came to your company for assistance.
6. Finally, once you determine a course of action, stick to it
You will see small gains at first, but over time you need to be thinking of setting realistic and attainable financial goals. Start a budget if you haven’t already and stick to it. All family members should be involved. Don’t deprive yourself or your family of anything, but divide things into needs and wants, with needs being prominent.
TIPS FOR DIVORCING COUPLES DEALING WITH DEBT
California financial advisor and forensic accountant Ginita Wall, financial advisor
1. Talk about divorce — and bankruptcy.
Wall’s advice: “If you are going through a divorce and then file for bankruptcy, it is my understanding that the divorce stops until the bankruptcy is complete. In other words, the bankruptcy court trumps the divorce court. Since it is less expensive to do a joint bankruptcy than two individual bankruptcies, and since both spouses are often signators on the credit cards, I advise they do the bankruptcy while they are still married, then the divorce can divvy up the assets (and sometimes debts) that remain.”
2. If you file for bankruptcy, deal with the debt the right way.
Wall told a cautionary tale of a client who went through a divorce in which her husband agreed to take over the credit card debt. After navigating divorce court, his next stop was bankruptcy court, where he was absolved of all the credit card debt. Then, one by one, the creditors started coming after my client, since she was still liable on the credit card debt. The creditor wasn’t bound by the decision in divorce court that he would be responsible for the debt. She had to negotiate with the creditors, and it nearly forced her into bankruptcy. She, of course, had a claim against her ex for what she had to pay on the cards for which he was to be responsible, but he didn’t have assets, so it wasn’t worth going after him. The moral of the story: “If your spouse takes over the debt, make sure it is transferred to a new card in that spouse’s sole name, and you close all joint credit card accounts,” she said.
2. Get it in writing.
If you close accounts or take your spouse off as signer, do it in writing, said Wall. “Years ago I had a client who called American Express and asked that her spendthrift husband, from whom she was separating, be taken off her account as a signer (the account was in her name alone),” Wall said. “He overheard her call, and called them the next day and said there had been a mistake and she hadn’t intended for that to be done, so they reinstated him. He then ran up a bevy of charges, and she had a devil of a time getting those charges removed from her account. She had to pay lawyers to fight a legal battle, and I had to do reports showing what he’d charged.”
