Dangerous Liaisons:
You, Your Lover, and That Troublemaker Between You – Money
When Love Leads from Red Roses to Red Ink: the Cautionary Tale of Susan Santiago
by Cindy Ellen Hill
Susan Santiago sits in a worn blue chair in the small front room of her rural Vermont home. Books teeter on ceiling-high hand-built shelves, a small critter rustles in a cage in the corner, and several pre-schoolers at Susan’s feet push around a fleet of miniature cars while making imaginary traffic sounds. Her long black hair is pulled back in a ponytail. Her dark eyes narrow and her lips press together in irritation as she pulls a handful of envelopes out of a tote bag and shuffles through her bills.
“There’s no direct correlation between how much money you have and happiness,” she states bluntly, “but there is a high correlation between your stress level and the level of debt you have.”
Though Susan Santiago is not her real name, this Vermont woman’s story is all too true.
At 39, holding a bachelor’s and master’s degree in English and working a full-time teaching position, the single mother of four is deeply in debt. She supplements her salary with a physically demanding part-time job, putting in twelve to thirteen hour workdays. While she’s never been rich, she has spent most of her life comfortably able to pay all her bills, buy a treat from time to time, and take the occasional vacation. Now, however, she has two mortgages, two homeowners insurance and property tax bills, a car loan, a home equity loan, and credit card balances greater than her annual income. She arrived at her present circumstances through love: she met a man and tumbled head over heels, right down a rabbit hole that has turned out to be lined with red ink instead of red roses.
“Love is love, and money is money,” she says. “I should have kept my checkbook closed in that relationship. The majority of the difficulties I have came from that. And I should have seen the warning signs – red flag, red flag, red flag.”
Susan grew up in an extended family household of modest financial means, but rich in love. Her mom moved her young family back to Vermont after a divorce in a far-away state. They moved in with Susan’s grandmother. Her mom worked in low-income advocacy services, her income qualifying her for all of the social programs that she was referring her clients to.
Susan’s mom never remarried and the family received haphazard support from dad. They lived frugally, never owning a car, walking everywhere. The large extended family all pitched in to ensure that food was always on the table and the kids were clothed. There was always heat, lights, and a roof overhead. Her childhood left Susan with a good model for managing a household with a stringent budget. Gardening, cooking meals sufficient to feed a large family, and supporting one another through lean times were all instilled in her at an early age.
But while her childhood taught her the lessons of getting by on little, and self-reliance through interdependence with loved ones, a few lessons were missed. Investing and long-term saving were non-existent concepts when there was just enough money to get by, and more importantly, the idea that someone she loved might not be there to support her never crossed her mind. (See sidebar below, “Family Attitudes Toward Money”)
Love and Marriage – Good Points, Bad Points, End Game
The fiscal constraints of her childhood did not deter Susan from academic excellence. After graduating from high school, she headed to a prestigious college in a distant state. She paid for her bachelor’s degree with a combination of grants and scholarship money. She supplemented these with some small student loans, but wisely managed not to incur a lot of college debt. The few loans she did undertake were easily met by her income when she started teaching after graduation.
She did have a minor economic setback after graduation, however. Distracted by her first free summer out of school, and with a teaching job lined up to start in September, she didn’t work through the summer months. She’d neglected to calculate the time it would then take to receive her first teaching paycheck, so she quickly took a part-time job at an environmental advocacy citizens group to offset her lack of income over the previous few months.
While working for the citizens group, she met Joe, a full-time environmental advocate. They fell in love, and when she turned 25, they were married. Susan and Joe entered their marriage with little in the way of debts, at a time of relative economic prosperity. In short, life was good.
Susan and Joe maintained separate bank accounts and then had a joint bank account for paying household bills – a common marital arrangement that can work quite well in a trusting, responsible relationship. The couple did not incur much debt during their marriage, either. They bought a house together, and the mortgage was easily met with their incomes. Susan continued to teach full-time, worked part-time at the environmental organization, and did occasional work, like child care and selling Tupperware, to fund the simple extras – gifts, dinners out, vacations – the couple enjoyed together. They had two relatively new cars with relatively small loans.
When Susan and Joe’s daughter was born two years into their marriage, Susan left teaching for a year, though she kept doing childcare and other home-based work on a part-time basis. Susan had good health insurance and benefits when teaching, but now she had to pay extraordinarily high COBRA rates to keep up her health insurance. She switched to a private health insurance policy for a while, then went without health insurance until she returned to full-time work.
From a fiscal point of view, Susan and Joe’s marriage was working. But money isn’t everything. When their daughter was two, the couple divorced. Susan and her daughter moved into an apartment in a nearby town. “He got the house, I got the kid,” Susan explains. “I didn’t want the house; I knew I couldn’t maintain it on my own. He was supposed to refinance it in his own name, but then found he couldn’t as the banks would not accept his income and credit rating alone as basis for the mortgage. So the house stayed in both names, and he let it fall apart. Then he just mailed the keys off to the bank and stopped paying.”
A neighbor called Susan to let her know there was a foreclosure notice on the door of her former home. She discovered that Joe had shut off the electricity. But the house had required the running of a sump pump, and there were now over four feet of water in the basement and mold “growing like a jungle.”
Neither begging nor anger inspired Joe to take responsibility. He’d simply washed his hands of the place. Susan had to pay the bill and make arrangements with the utility to turn the electricity back on, and then pump out the water and clean the basement with bleach so the house could be sold.
Susan discovered that the mortgage payments at that point were behind about $15,000. She thought of trying to raise money to pay it off by asking everyone she knew or met for $20. At one point a cad she had dated offered to clear the debt if she’d sleep with him – an offer she promptly declined. She hired an attorney who suggested making an offer to pay off the fees and put the balance owed back on the end of the mortgage, but she realized that if she could come up with the $15,000 which was owed, she could instead buy her own place that didn’t have issues like an indoor basement swamp replete with frogs. In other words, it wasn’t worth chasing after the money to pay off the debt on a house she didn’t really want.
The foreclosure went through, and was entered onto her credit record. However, her credit was otherwise excellent, and three years later she was able to secure a mortgage of her own to purchase her house in Vermont. “The banks looked at my credit record and saw the rest of it was excellent. With the foreclosure, they understood about ex-husbands,” she says, shrugging. “I guess these things happen in divorce.” (See sidebar below, “Joint Bank Accounts: A Matter of Trust”)
Child Support
Before her return to Vermont and home ownership, Susan rented a place to live with her daughter and went back to teaching for a few years. She returned to school at night for her master’s degree, which she was able to pay for in cash as she went. Her ex-husband lived nearby and at first participated regularly in visits and childcare for their daughter, but he never lived up to his financial obligations to the family.
When Susan divorced, the court ordered a monthly $450 child support payment, but Joe never paid it. “The child support was paid erratically. He never paid the full amount, but at first he’d pay something every month, $200, $250.”
Susan did not return to court to enforce the child support order. “I wanted him to have a relationship with his daughter, so if he was seeing her, bringing her Christmas presents, calling on her birthday, I didn’t want to upset that with the money issues,” she says, noting that she and her daughter were getting by adequately, if not comfortably, on her income. “But then he cut all contact, and now he’s disappeared completely. I don’t even know where he is. He hasn’t paid anything in six years, and he’s completely ignored Christmas and birthdays the last few years.” (See sidebar below, “Child Support: Keeping the Family Afloat”)
Eventually, Susan would move back to Vermont, whereby Joe stopped paying child support. He stopped all contact with his daughter when Susan entered another relationship – the love that would ultimately lead her to the brink of bankruptcy.
A Mother’s Love
After completing her master’s degree, Susan received a job opportunity at in her home town that brought her back to Vermont in 1999. Despite the negative blot on her credit rating from Joe’s abandonment of their marital home, Susan was able to buy her own house in Vermont. The house is small, about 1000 square feet, and when purchased needed some work. She swiftly got a home equity loan to redo the foundation and some other repairs, and the loan amounts remained payable because the house had been modestly priced. At the time her job had full benefits, and she had a car loan, and a couple thousand dollars in credit card debt that had accumulated over time with child and moving expenses. Still, the combined payments for the mortgage and the home equity loans were less than the rent she had been paying in the other state. At this point, she was still getting some child support from time to time, though less than the court-ordered amount.
The snug little home might not win any architectural awards, but to Susan it was the perfect nest for the family that she had always envisioned, and she was not about to give up on the idea of a family just because her marriage hadn’t worked out. “I always wanted to be a mom,” she says warmly, gazing with obvious love at the brood playing at her feet. “I told my grandmother I wanted ten kids, and she was so happy. She wanted to beat her siblings in the number of grandkids she had. And I wanted a family from around the world. I was always interested in international adoptions. I love kids. I wanted these kids, children whose parents love them but can’t raise them due to their own economic situations.”
Susan started taking in foster children, intending to adopt through the foster care system. “But as a single mom I was only offered older children and kids who were temporary placements where parental rights were not going to be terminated,” she recalls. While she continued to provide temporary homes to a series of foster children, most in their teens and going through difficult times, she set her sights on the long slow process of international adoptions.
International adoptions generally incur about $15,000 to $20,000 in expenditures. Susan used a piece of her home equity line that hadn’t been spent on home repairs and traveled to China to bring home her second child. Between her good income level and her very modest economic habits, finances continued to hold at a manageable level, although shadows of concern began to pass across her financial picture – she had no savings. In addition to her mortgage she now had the home equity loan and a few thousand dollars in credit card balances. Joe’s child support payments had stopped coming altogether. And now there were two children in the household.
But Susan tightened her belt and continued to run the household in the frugal, well-ordered fashion she had learned from her childhood: she purchased household goods and clothing from thrift shops and garage sales, and took hand-me-downs from friends and family. She raised large gardens, canned and froze much of the family’s food, and socialized over home-cooked feasts lovingly prepared rather than spending money going out. The family had no television; they read, primarily books from the library. To see a growing family in a home of her own making brought Susan profound joy; she quickly signed up on the international adoptions list once again.
“I Was In Love”
Then it happened: unexpected, unlooked for, uninvited. Love. A big warm teddy bear, friend-of-a-friend, met on vacation through mutual acquaintances. Sparks, stars, and feet barely touching the ground.
“Within two months I was paying his bills,” she says. “I want to help, I’m so programmed to help people. I want to be generous. I was in love. I thought, if he loved me the way I loved him, then the whole idea is that whatever we did, it would work out. It would all be okay. I could help him, and he’d be there for me. It’s that nice girl thing. I was raised in a family where we helped each other. It didn’t dawn on me that I wouldn’t get paid back. We were going to be together forever because we were in love and getting married.”
Susan left her job in Vermont and moved to Maine, two kids in tow, to be with her betrothed. Her skills and college degrees landed her a full-time job with benefits in short order, but the commute was long. So her income was diminished, while transportation expenses were rising. She rented out her house in Vermont; the rental payments were covering her mortgage and home equity bills, but not generating income. Plus, there were constant issues and concerns regarding the tenants – reports from neighbors that there were prohibited pets or excessive noise, calls from the tenants regarding heating and plumbing issues. While in years past Susan had picked up extra part-time work or house-based sales deals to supplement income when things got tight, now, between the commute, two children, and long distance home ownership – not to mention the love affair that prompted her to move in the first place – one set of regular job hours was all she could handle.
Then she and her fiancé bought a house – except as it turned out, the house, and the mortgage, were only in his name. “He was going through a divorce,” Susan explains. “He went and bought a new car with a huge monthly payment, thinking that the divorce judge would consider that one of his monthly expenses and reduce child support because of it, but it didn’t work that way. He actually didn’t protect himself in his divorce at all. His ex-wife got the house and his retirement and the kids, as well as alimony and child support. He got all the debt, and was paying $1800 a month in child support. In another life, I would have liked his ex-wife. She was very smart.”
Her fiancé’s income was just covering his child support and car payments. At first, the banks would not give him a mortgage because his debt ratio was too high. Then, without even thinking about it, Susan agreed to transfer his credit card debt over to hers in order to reduce his debt load so that the banks would give him a mortgage. Suddenly she was carrying credit cards with tens of thousands of dollars of debt on them, and paying on the mortgage and utility bills for a house which she considered belonged to her and her fiancé jointly, but in which she had no legal interest.
The house was a beautiful suburban home, larger and more elegant than anything Susan had ever lived in. She envisioned the place full of friends and a growing family as she awaited word on her second international adoption. She was, she recalls, in love with a wonderful man and fulfilling her dream of a large, loving family; plus, she had a home she absolutely loved with a kitchen worthy of her cooking talents, and an inground pool to boot – with no frogs. (See sidebar below, “Never Buy a House on a First Date”)
Although the couple had talked to an attorney friend about coming up with an antenuptial agreement regarding their finances, they never sat down and committed anything to paper. When his credit card debt was transferred to her, however, Susan did jot down an agreement. “I have a little scrap of paper,” she says. “It says how much he owes me and that if the relationship dissolved it would be payable immediately. It dissolved, and he still owes me about a third of it, two years later.” (See sidebar below, “Prenuptials: Get it in Writing”)
As her fiancé’s divorce closed, his relationship with Susan also fell apart, as swiftly and intensely as it had begun. Now Susan had tens of thousands of dollars of debt, nowhere to live, and a job in a state far from home, friends and family. She rented, then purchased, a reconstructed mobile home slightly closer to her workplace. She ceased all payments on her former fiancé’s household bills, and fought to maintain a cash flow sufficient to hold her family in stasis through the bleak winter.
One ray of light came into her life at this time. In the course of local child care work, Susan and her two children met a child in need of a home; the girl quickly found one in their hearts. Susan deferred her spot on the international adoption list while she completed the legal process to bring this third child into her family. She later found out that the costs involved should have been less than half of what they were; an unscrupulous lawyer familiar with how much she’d paid relative to international adoptions had significantly overcharged her.
Susan and her three girls remained in Maine until the end of the school year, then left the house vacant but not sold. They returned to Vermont and Susan terminated the lease of the people renting out her house here, having to make significant repairs, replacing broken windows and pet-stained carpets. Her previous Vermont job had been filled in her absence, so she began an agonizingly long search for work. Eventually her skills landed her a good teaching job again, but before that materialized she was significantly underemployed for six months. Susan picked up what cash she could, doing daycare at church, tutoring, and other fill-in jobs that came along. Meanwhile, she had mortgage payments to make and a family of three children to attend to; her credit card debt increased, as did her car expenses. (See sidebar below, “Dollars and Cars”)
She was now carrying two mortgages, two homeowners insurance policies, two property tax bills. Finally, she found renters for her house in Maine; although she makes no money off the property, their rent payments cover her bills. “That place is supposed to have been sold already,” she says, “but at least it’s rented, so it’s holding its own. The renters want to buy it, but they haven’t been able to get approval for their financing – it’s just one of those complicated situations. But I’m not losing money on it.”
House of Cards
By the time Susan’s new teaching job started, things were “scary.” “I’d fallen behind, not only on overwhelming credit card debt, but on the utilities, phone bills, garbage, fuel. Everything was piling up. The credit cards were escalating, and if you are late on one payment everything gets jacked up. Under the new rules, if payment is late on one card they can jack the rate on all of your cards.” (See sidebar below, “Why Credit Card Companies Can Charge You All That Interest”)
A few months ago, she made a late payment on one of her many (“I’ll admit to three”) credit cards that are presently holding debt equivalent to at least one year’s pay. She got notices from all her major cards that her interest rate would surge to 32 percent.
Overcome by a wave of intense anxiety, Susan considered bankruptcy. But with the two houses in her name and the new, stringent bankruptcy rules that require people to go through credit classes and adopt complex repayment plans, she realized that bankruptcy would likely either be unavailable to her, or be far too costly. The time spent in credit management classes or with an attorney and in court could be better spent pulling in more income and dealing directly with the issue, she reasoned. Susan called the credit card companies and negotiated the rates back down. Because her credit record was otherwise good despite huge debt balances, most of the card companies adjusted the rates down swiftly; with the one that didn’t, she closed her account having transferred the balance to another card. (See sidebar below, “Money and Stress”)
In addition to negotiating lower credit card rates, Susan has taken on a grueling early morning job that ends before the school day, which covers her utility expenses. Evenings and weekends she tutors, serves as an elder companion, and cooks meals to order that are by all accounts “fabulous”. “Right now I’m managing the debt by taking on secondary jobs and doing everything I can to not incur any more debt,” she explains. “I’m patching it together. I barter a lot, which helps reduce expenses. Christmas was very cheap, and I didn’t charge anything. This month, finally, I will be able to pay all of the current utility bills and the minimum credit card and loan payments and have maybe a few dollars left over. That means I’m turning the corner, but it’s taken three months of working extra jobs. I’ve been playing catch-up.”
While playing catch-up, Susan’s fourth child, a son, came into her family. Having been on the international adoption waiting list for a very long time, she did not want to miss this opportunity when it arose. She financed that adoption ‘very creatively’ using tax returns and other ‘found money’ and adding a small portion of the cost into her credit card debt.
While she may have turned the corner working superhuman hours, “if any unexpected expense comes up, I’m screwed. I’ve got a little bit of retirement, not much. My savings is a jar of pennies. The stress is definitely felt. I’m preoccupied, I’m busy,” Susan sighs. “We don’t just pick up the phone and order pizza. If I won the lottery I’d pay off the debt and make sure I never got back in again. It’s a slippery slope.” (See sidebar below, “Liveable Wage and the Debt Trap”)
One new expense that looms frighteningly on Susan’s horizon is an imminent health insurance increase. “I have health insurance through work, but it is going up. It’s scheduled to more than double in 2007. The dollar amount is reasonable, but it is only single coverage. The kids are all on Dr. Dynasaur. I couldn’t afford it otherwise.”
Love of Life
Susan continues to put her love of life and family first, and refuses to let her financial stress wear that away. “There’s a good side,” she says earnestly. “I have four wonderful children, and we have plenty of stuff. If I spend money, it’s on my kids. My kids may not have everything they want, but they’ve got more than what they need. And of course we don’t have television, so they don’t realize that they’re supposed to want all this other stuff. They didn’t know what iPods were until someone gave them one.”
Susan finds great value in small things, especially in her kitchen. The only luxury she has bought herself in the last several years is a set of cheery yellow nesting mis-en-place bowls she found for less than $5 at TJ Maxx. “They’re adorable,” she says, holding them up with a warm smile, no doubt envisioning the mounds of warm spices they’ll hold as she cooks up one of her dinners renowned among the grateful friends who eagerly squeeze around her tiny table.
Even now, Susan places blame for her circumstances on her own heart and shoulders. “When you’re safely in a relationship, when you’re in the honeymoon stage, it’s so easy to say, here, let me take care of that for you. But that’s the time to look seriously at the finances and what you are doing and assess the long-term consequences. That was my mistake. I just wanted to please. I didn’t understand his financial situation, and when I started to question it, I didn’t ask the right questions. I don’t even think he was shamming me, I think even he didn’t know his situation.”
While her own extraordinary efforts will eventually dig her out of this hole, the two men in her life who owe her money could lift that weight from her shoulders in short order – if they were anywhere to be found. “Right now, if I could get the rest of the money he [the ex-fiance] owes back, I’d be in okay shape,” she admits. “He keeps making repayment plans and then changing them. He did pay back two-thirds of it but now for two years he hasn’t paid anything. I call his sister. I email him. If he paid me his debt, I’d be okay. And if my ex paid his child support, too, then I’d be perfectly fine.”
So how do love and money go together? “There shouldn’t be a relationship between love and money,” Susan warns. “Open your heart, and close your checkbook. Be very cautious. You can recover from a broken heart but you might not recover from a broken bank account. My relationship has been over for two years, but I still pay for it every month.”
The Basics
The Basics:
How to Balance a Checkbook – Don’t be shy. Lots of folks don’t know how to do it. Here are two great demonstrations of how to keep track of your checking account and balance it out at the end of the month:
http://extension.unl.edu/welfare/check.htm
http://singleparents.about.com/od/financialhelp/qt/balancecheck.htm
How to Establish a Household Budget – Sticking to it is the hard part, but establishing a household budget as a base to start from is key to paying bills and meeting longer-term financial goals:
http://www.foundationforcrediteducation.org/mymgmtbasics/create_budg.asp
http://www.teachmeaboutcredit.org/aboutus.aspx
How to Get Started Saving and Investing – It’s hard to weed through all the information on savings and investing, as most publications and online articles on the subject are thinly-veiled attempts to get you to buy into their particular investment product. Check your local newspaper and adult education course listings for personal finance courses such as the one Ana Saavedra teaches in Brattleboro [see “Title Here”, pg. ##] and take some time to read and learn about investing while saving up a fledgling fund to get started with. Here are two practical-minded articles to get you started:
http://www.corningcu.org/straighttalk/reports/st-savings-plan.htm
http://www.usatoday.com/money/perfi/columnist/krantz/2005-03-23-get-started-investing_x.htm
Family Attitudes Toward Money
It’s not unusual for women to ‘inherit’ their initial attitudes towards money, spending, and investment from their family.
In Ana Saavedra’s case, that means viewing saving and investing as a fun family activity. “I’ve been investing myself since I was very young,” says the licensed Investment Broker who works with Edward Jones on Main Street in Brattleboro [see Vermont Woman, March 2006]. “We’d sit around the dinner table talking about who put their money in what. I started out relatively young and made some extraordinarily colorful mistakes, but those are the ones that teach you the difference between investing and speculating.”
Saavedra’s family’s love of finance not only stuck with her into adulthood, it developed into a career that emphasizes helping women reach financial independence and increase wealth. “There are a lot of issues facing women regarding their investments and a lot of setbacks women have had, in and out of the workforce,” she said. “Women tend to participate less in retirement plans, and when they do, they are more likely to dip into retirement plans for their kids’ education. Women live longer and have fewer assets. Traditionally, women have earned less than men; our career paths are not straight, we’re in and out of the work force […] and those women who have traditionally dipped into those funds for their kids tend to rely on their husbands. He’s got the pension plan at work and the 410k, and we think we’re fine. Then an unexpected divorce happens and we get hurt.”
Bankrate.com, a free online resource that allows you to compare banks, credit cards, and loan terms and calculate the real cost of items purchased on credit, puts hard numbers to gender and money: women on average live six years longer than men, and women still earn little more than 70 cents on the dollar compared to men’s wages. This means that, from the start, women live longer on less income. Ninety percent of women will be entirely responsible for their own finances at some point in their life, usually due to divorce or the death of their spouse. And one in three women in the US lives below the poverty line; globally, the figures are even harsher.
Saavedra is on a mission to change this, one Vermont woman at a time. “A big part of what I do is teach people about investing. I give a five-week-long class at the Brattleboro Union High School several times through the year. We go through the basics of stocks, bonds, mutual funds, CD, government investment vehicles, risk and rewards, what questions to ask, what are the particulars you should look at. People say okay, I’m not a pro, but I know how to make a decision now.”
Saavedra also helps women pass financial savvy on to their kids. “I have a number of clients who bring their kids to me, and they march them in here now and again and we talk about mutual funds and what their goals are and how to get there. These kids are going to have a leg up.”
To sign up for Saavedra’s financial course, contact her at:
Ana M. Saavedra, Investment Broker, Edward Jones
225 Main Street
Brattleboro, VT 05301
802-257-4144
Joint Bank Accounts: A Matter of Trust
You’re in love, and you want to tell all the world, right there in print on the front of your checks. But are you really signing on to ‘share and share alike’? Joint bank accounts are not a fifty-fifty proposition: either person on the account can withdraw the full amount – or send it into overdraft without the other person’s permission--or even knowledge.
“There’s no question that a joint bank account is his OR hers, yours OR mine, from the bank’s perspective. We don’t differentiate between owners; if the account is held [jointly], then either party is authorized to transact business,” says Sarah Cowan, Senior Vice President of the National Bank of Middlebury.
Because of shared finances, however, a joint bank account remains the most common account for married couples. “In terms of giving advice to married couples as to which account is right for them, we would have to look at the relationship between the parties, and that’s really not for a bank to do,” Cowan continues. “What concerns me most is when people don’t have a legal relationship with one another, but they are sharing bank accounts.”
Some couples find that a single bank account works for them; another common configuration is a three-account ‘yours-mine-ours’ arrangement. “Often couples have a household account where the joint bills are maintained, and then they each have individual accounts,” Cowan says. There are advantages and disadvantages to either arrangement.
When all the money is pooled in one account, a higher balance is maintained that might qualify the couple for better interest rates. On the other hand, a joint account is not available to be considered on either individual’s loan or credit applications.
“Technically when you are listing on a credit application, or filling out an application for a loan, if you are citing a joint account it should be so identified as a joint account. Legally there is a difference in the type of ownership,” Cowan says.
Maintaining separate individual accounts means lower balances in each account, but it also means each person can rely on those accounts in credit and loan applications, and need not worry about surprise balances when the other person on the account has made an unannounced expenditure. It also allows each person to make personal purchases – a trip to the spa, a birthday present – without the other person scrutinizing every check.
Cowan cautions women in particular to take immediate protective steps regarding their finances when a relationship is coming to an end. “When a couple is breaking up, it is not unusual for one or the other to run amok with the accounts or the credit cards, and that’s something you have to be very careful about. When someone has separated we advise that they immediately separate their finances as well and set up separate accounts,” she said.
Some types of accounts are more sensitive to couple issues than others. “Home equity lines of credit are secured by the home, and it’s not unusual in those types of agreements to have a built-in power of attorney stating that each person on the line of credit is authorized to take actions for the other person.”
It’s important to find a bank you can work with comfortably in making decisions about accounts. Often local banks can consider factors that won’t cross the radar screen of larger corporate and Internet banking institutions. For example, Susan Santiago was able to obtain a mortgage for her home in Vermont despite a foreclosure on her former marital home because she worked with a local banker who ‘understood about ex-husbands.’
Child Support: Keeping the Family Afloat
For many Vermont women and the children they love, child support can make the difference between living, and living in poverty.
According to Sarah Lee, an administrator at the Vermont Office of Child Support (OCS) and former executive director of the Vermont Commission on Women, of recently separated couples with both partners remaining in Vermont, 90 percent of non-custodial parents are subject to a child support order.
“It will be paid on a regular basis by being deducted right from their paycheck by the employer and sent on to OCS, and we send it to the child via the custodial parent,” she said. “If you have regular employment and the child support gets paid regularly, it can often make the difference between the custodial parent and the children living in poverty or not. We’ve had many women who were receiving public assistance and then, once they were getting child support, could come off of public assistance.”
In the last fiscal year, Vermont OCS serviced 22,400 child support cases. About one-third of those are interstate cases, where the non-custodial parent lives out of state. These interstate cases are always more complex and harder to resolve, Lee noted.
It is not unusual for OCS to see situations like Susan Santiago’s, where a request for child support might come long after payments have stopped.
If Susan were to apply to OCS for services regarding missing child support payments, past and ongoing, she would be assigned a caseworker who would interview her and gather all the available financial data and information about the non-custodial parent right through his last known address. The caseworker would determine what services were needed, which might start with ‘locate services’ to find the non-custodial parent.
“Another question is whether the children involved have reached the age of 18. If they have, then you are only pursuing arrears; if they have not, then there may be present child support payments still due as well as arrears,” Lee said.
Success depends on the individual case. “We can only enforce what the court has ordered, so that’s the language that determines what happens,” Lee said. But, she adds, “there is nothing to preclude this person from applying for services and I would not rule out that child support could be obtained—although, in an interstate case where you’ve lost track of the noncustodial parent, it could be more difficult.”
Although the process takes time and effort on the part of the custodial parent, it does not cost out-of-pocket money, and OCS provides significant assistance in making sure the proper paperwork is completed and presented to the court appropriately. “We help provide the custodial parent with the paperwork, and we have paralegals that help them to complete all the necessary information,” Lee says. “But we are not representing either parent; it’s the interests of the child we are representing. It’s the child’s money. It’s a legal order for a parent to provide their child with money for support, and that needs to be enforced.”
Never Buy a House on a First Date
A woman I’ll call Molly Picard came into my office a few years back for what her appointment slip said was a simple real estate transaction.
“Buying a house?” I asked brightly.
No, she replied “I just need you to take my ex-partner’s name off my deed.”
I pursed my lips. “You mean you’re divorcing?”
She started to blush. “No, I mean, this was just my girlfriend. We split up a few years ago.”
I looked at the papers she handed to me. There it was, deed to a house and three acres, to Molly Picard and Mary Jones as tenants in common. I shook my head. “You can’t just take someone’s name off a deed, Molly. She owns half this property. You will have to transfer the property, just like a sale. We’ll need Mary’s signature on the deed.”
Molly’s jaw dropped. “But it’s my house! Mary’s name was just on there because I needed her to sign the mortgage with me.”
“If she’s on the mortgage, too, then we’ll also need the bank to okay it. This will mean a title search, too, so it’s not something we can do today. But if you give me Mary’s address, phone, and social security number I can get started on the paperwork. Have you talked to her about this?”
Molly slumped in her chair, silently stretched her hand over and pulled back the paperwork. She folded it slowly and slipped it back into her big green tote bag.
“Molly?” I prodded.
“I haven’t spoken to her in three years. I have no idea where she is. Last I knew she was living with someone, then they split up and I have no idea where she went.”
I sighed. This was not the first time I’d heard such a tale. I’d provided legal counsel to at least a dozen women who had married when they were seventeen and not seen their husbands since they were eighteen and a half; or women who’d volunteered for a ‘green card’ marriage and hadn’t seen the immigrant spouse since his naturalization ceremony.
For cases like those, Vermont and most other states have a solution: divorce from an absent spouse can be granted after publication a certain number of times in the newspapers. (I’ve heard of more than one woman divorcing her spouse this way, even when the guy was around, just by swearing she didn’t know where he was.) The court can then issue orders regarding jointly-owned marital property – houses, cars, credit cards, bank assets – just exactly as they can when both parties are present and accounted for.
“Molly,” I said in a serious tone, about to deliver my legal equivalent of the-birds-and-the-bees speech, “Joint property ownership is a very serious thing. Buying a car, or a house, or anything that requires legal steps to acquire it or divest yourself of it, is not something to be done lightly, by one person alone; and it certainly isn’t something to be done lightly by any two people, be they friends, cousins, neighbors, or lovers. Owning joint property with someone means you are jointly responsible for it. It also means neither one of you can do anything without the other. You can’t sell this property or borrow against it without Mary. You two are partners in this. When you entered into that partnership, you took a risk: a risk as to whether the two of you would agree on what to do with the property, a risk that somehow the two of you would be able to maintain and keep up the property. And a risk that Mary would be around to dispose of this property in agreement with you. Now, you are running the risk that her credit record may be affecting you, since you have a large joint asset. And you are running the risk that she might have gone out and taken out a loan you don’t know about on this property, or been sued somewhere else resulting in a lien on the property. In fact, she may have died or been injured and her half of this property might actually be controlled now by whomever her executor or administrator is!”
Molly was, to my surprise, not looking suitably intimidated. “I really don’t think it’s that complicated. When I talked to the real estate lady about selling the place, she just said I needed to go have a lawyer take Mary’s name off the deed.”
Ah, blessed be the real estate ladies. The ones who tell buyers that lawyers only charge $200 to do title searches that take sixty hours. The ones who tell buyers that they don’t need a lawyer because the title insurance company has one. The ones who tell women who have a very serious legal problem that they just need a lawyer to slap a little white-out on a deed to make their problems go away.
“Molly, with all due respect, the realtor was mistaken. You have several options. You could go into court with an action to quiet title, or bring a lawsuit against Mary seeking to have her removed from the deed. But you will need the bank’s approval to take over the mortgage in your name alone, and if you’re having financial difficulties that may not be possible. I’d strongly suggest that you try your best to find Mary. I know that may be awkward, but call the woman she was living with or neighbors at her last address, or her family. Or hire a private investigator to locate her. Without her signature on these papers, this is going to be a long, difficult process.”
She frowned at me with one of those I-don’t-like-lawyers looks. “I’m going to go ask someone else. I don’t have the money to do all that complicated stuff. I just need her name scratched off the deed.”
I don’t take such things personally. Usually a person with legal issues needs to hear it about three times from three different lawyers before it sinks in. I sent her on her way with a handshake.
From time to time when I’m down in the town clerk’s office, I look up Molly’s deed in the records. It’s still there, still in the name of Molly Picard and Mary Jones. I have no idea what Molly managed to do for money or whether she ever found Mary.
There used to be a whole mess of things that Mom was supposed to tell you never to do before marriage. Unfortunately Mom was working from an incomplete list that over-emphasized bodily integrity and social reputation, perhaps even economic value as marriageable commodities. And nobody pays attention to that list anymore. So here’s my motherly advice for maintaining your legal integrity and credit reputation, not to mention your sanity down the road: enter into any legal transaction with another person with your eyes wide open. You’ve heard that when you sleep with someone, you sleep with their whole history of sexual relationships – that is, you not only risk diseases ranging from itchy to fatal, but also risk playing out whole patterns of behavior you may not have ever imagined. When you enter into a legal transaction such as purchasing a house, buying a car, or getting a joint bank account or credit card with someone, you are teaming up with their whole history – and future – of legal and financial relationships.
Our legal system has evolved to have avenues to deal with fugitive spouses and deadbeat parents, but the State does not favor informal social relationships. There is legal recourse, but instead of following an easy process, it involves expensive litigation on the part of the aggrieved party. If you are going to enter into a legal transaction with someone, better make it in the context of a legal relationship, such as marriage, civil union, or a legally-registered limited liability partnership.
Don’t you wish Mom had told you?
Prenuptials: Get It In Writing
Love is a disease that makes us really stupid.
Okay, that’s harsh. Love makes us optimists: we are certain things will work out. What better atmosphere could there be to sit down and design a written agreement for the future of your lives together?
A family is also an economic unit, and its success can be measured by its level of harmony, comfort, and security. A prenuptial agreement is the “business plan” for the successful future of your marriage or civil union.
Prenuptial (and Pre-Civil-Union) Agreements
Prenuptial Agreements – also called Antenuptial Agreements (as in, “ante up”) or Premarital Agreements – are a special kind of legal contract between two persons intending to be joined in marriage or civil union, to establish how the partners’ assets will work together, and how they will be distributed should the relationship dissolve through separation, divorce, or death.
“Prenups” have received a bad rap as the way rich male movie stars prevent pretty girls from marrying them in hopes of getting a quick divorce and half the cash. With divorce odds running close to 1:1 today, and the financial strength of women growing, the glass slipper of prenups is now on the other foot. A woman with her own bank accounts, real estate, retirement accounts, businesses, and family inheritances, can ensure that the financial castle she’s built for herself over years of hard work remains hers, even if she lets the prince live there a while.
Get It In Writing
Under Vermont law, prenuptial agreements must be in writing to be enforceable. Prenups can be amended after your wedding as financial circumstances change. They can include a “sunset provision;” for example, you can agree that the financial provisions end when the children reach the age of 24, or when both of the partners retire, or at any other given date.
What Prenups Can’t Do
Vermont courts will not accept a prenuptial agreement which would leave one of the partners impoverished. Courts will void other “unconscionable” or ridiculous provisions, like requiring one spouse to not gain weight during marriage. Prenuptial agreements cannot provide for payment of less, but can provide for more, child support than mandated by state guidelines. Prenups can set out terms of custody and visitation, but Vermont courts have been clear that they will not enforce a prenuptial agreement that contravenes public policy.
First, talk with your partner. As the nonprofit organization Equality in Marriage puts it, “A relationship built on reality is stronger than a relationship built on illusion.” In creating a prenup, you’ll fully disclose your finances to each other, and devise a process for melding them in such a way as to protect each partner, your children, and the material underpinnings of the marital estate.
Second, get lawyers. Since the prenup impacts a potential divorce, you each need your own matrimonial lawyer, just as you would in divorce. Talking through the main points of the agreement before visiting the lawyers will help minimize legal costs. If lawyers and money issues make you nervous, have a business-savvy friend or relative assist you. Make sure you understand what you are signing.
What Goes In Must Come Out
A common term in modern prenups is that whatever assets each person brings to the marriage remain the property of that person and, in event of divorce, go back out with that person. Partners can agree to pool assets for joint investments, such as a home purchase. One simple way to do this is to establish “yours,” “mine,” and “ours” bank accounts; the prenup can specify that assets converted to the “ours” bank account are relinquished as personal property and deemed marital property. In event of divorce, marital property is divided in whatever proportions the prenup specifies. The prenup can also state who is responsible for debts brought into the marriage.
Second Time Around
Second marriages carry unique financial issues, including providing for children of the first marriage. A prenup can specify that a spouse will not challenge a will that leaves assets to one partner’s children. Terms may be placed in a will to assure that one’s children will receive those assets intended for them.
Non-financial terms
Non-financial terms can be included in a prenuptial agreement, including what religion the children will be raised in, or whether you can be compelled to give up your religion or take up another one; whether or not you are obligated to move to some distant state or country if your spouse takes work in another location. These issues are particularly sensitive to women of certain ethnic cultures, and can be a critical part of the prenup if she marries someone of a different cultural background.
Conclusion? Prenuptial agreements are the foundation of a sound, equitable domestic partnership based on facts, fairness, and trust. Love is a wonderful thing – just get it in writing.
Ask a lawyer if a prenuptial agreement would benefit you if:
- You have monetary assets, such as a home, stocks, or a retirement account
- You are a business owner
- You may receive an inheritance
- You have children from a previous marriage
- You have a lot more, or a lot less, money than your partner
- You have an elderly or disabled relative in need of care
- You are pursuing a degree or license that is potentially lucrative
- Your cultural or religious beliefs regarding children or personal practices are substantially important to you
- Your plans with your partner include one of you making a much larger monetary commitment than the other, such as one partner being the breadwinner while the other raises the children and runs the household
Dollars and Cars
When Susan’s work in Maine was coming to an end, she pondered the condition of her car. The long daily commute had left the vehicle on its last mechanical legs, so Susan purchased a new minivan while she was still employed full time, knowing that without a job awaiting her in Vermont she might well be stuck without a car. With three children and no other adult with a vehicle in the household, Susan opted for the security of a brand new vehicle—making car ownership significantly more costly than it had to be.
This was on top of another costly car decision. The first car Susan ever bought was a used Subaru in college. She paid that loan off without any problem. Then she traded up and bought a Miata. When she had her first daughter she wanted something larger, so she sold the Miata, but she was “upside down” on the loan – she owed more money than the vehicle was worth. This is due to the fact that a new car not only depreciates, it loses up to 40 percent of its ticket value the minute it’s driven off the lot. The new car that you finance at a price of $20,000 in the showroom becomes worth $15,000 or less the minute you drive it out the door – and its value continues to drop faster than the principal on your car loan.
She bought a minivan while paying off what was left on the Miata loan, but the minivan turned out to be a lemon. She traded that for a Ford Escort wagon, but when she adopted her second child she again needed more space and sold the wagon for another minivan.
“That was a mistake. That Escort is still running for the person who bought it,” Susan says. “When I traded that in for a new van, I was again upside down on the loan. Being upside down on one car loan just triggers problems right down the line. My mom never had a car, and that was how we made it financially growing up. There were no car payments, no repairs and maintenance and insurance. We just walked everywhere.”
Susan’s mom was on to a little-known financial secret. Vehicles are usually a family’s highest expense – often higher than that of housing over the course of a lifetime, especially when you take into account that real estate appreciates while motor vehicles consistently depreciate.
You would never know it from the car manufacturers’ advertisements, but all reputable financial advisors agree: buying a used car is significantly cheaper than buying a new one. Despite the warranty coverage for repairs, the interest rates on new car financing and the added costs of higher insurance on a new vehicle, not to mention the base sticker shock, make a new vehicle an extremely expensive proposition – over the course of your lifetime, hundreds of thousands of dollars more expensive than driving used cars. Edmunds Financial has published one of the best explanations of the figures, including an interactive calculator function that lets you find out how much a car you’re considering purchasing will really cost you over the life of the vehicle: http://www.edmunds.com/advice/buying/articles/47079/article.html
The good news is that car expense is also one area of most women’s lives that, with careful planning, can be reduced, probably more easily than housing, food, and utility expenses. First, reduce car usage by walking, biking, or taking public transportation. Ride share and car pool. Second, if you are pondering a choice of residence location, remember that a slightly more expensive home in a community where you can go with minimal car use is going to be far cheaper than a low-rent rural home that requires miles of driving for every small errand. Finally, buy a used car – from a reputable dealer, and make sure they allow a full inspection by a mechanic you trust before purchasing. If, like Susan, you feel strongly that you need the reliability of a new vehicle, be sure you go into it with your eyes wide open, and balance the excess financial costs against the peace of mind that comes from knowing the jalopy will start – and stop – on a winter’s morning. If the new-car costs won’t break your budget, it might well be worth it; if an additional many thousands of dollars worth of expense over the course of several years of vehicle ownership will strain your bank accounts, then don’t do it.
“The new van is in great shape and works for us,” Susan says, and when other parts of her life may be going awry, that’s a great relief.
Why Credit Card Companies Can Charge You All That Interest
In banking terms, a credit card is a ‘revolving line of credit.’ This means a certain amount of credit is extended to you to use, and then as you repay it, the credit becomes available again. It is a loan that continually renews, instead of a one-way static loan, such as a mortgage or car loan, where the balance simply goes away as you pay, but no new credit is extended.
There are many fees and costs associated with using a credit card. Among them are annual fees, which are once-a-year charges simply for the privilege of having the line of credit, whether or not you actually use it for purchases. Other charges include extra fees for taking cash advances and for using the pieces of paper that work like checks, which credit card financial institutions like to send people around the holidays.
But the biggest cost of all is interest and late fees. Interest is the calculated rate of surcharge that the financial institution charges you on all outstanding balances; late fees are charged when you don’t submit your payment by the date specified on the bill. However, in addition to the late fee, failing to pay by the due date can also trigger an increase in interest rates – not only on the card you were late on, but on every credit card that you hold.
The legal term “usury” refers to a rate of interest on a debt that is exorbitant, or in excess of the percentage allowed by law. States set their own usury rates, or rates of legally collectible interest for various types of loans, and loaning money at interest rates beyond that amount is the crime of usury. Banks and other commercial lenders are generally not troubled by the anti-usury laws, as their rates are kept in check by a highly competitive market, and the market rates generally follow the rates set by the Federal Reserve Bank for loans to these financial institutions.
Rather, usury laws generally come into play regarding ‘loan sharks’ and other store-front lenders – pawn shops, check-cashing outfits, and pay-day loan services – who cater to a clientele that does not qualify for standard commercial bank loans.
So how can banks distribute credit cards with interest rates that would make a loan-shark blush? According to Vermont state law, interest on most loans is capped at 12 percent, and on certain commercial lender accounts at 18 percent. Car loans and certain other small, short-term installment loans can go as high as 24 percent. However, like most states, Vermont law places no cap whatsoever on credit card interest rates, leaving it to the parties involved. As our statute states, “For a bank credit card account or revolving line of credit, the rate shall be the rate agreed upon by the lender and the borrower.”
Vermont’s lack of usury rate for credit cards has virtually no impact because, by federal law, the interest rate caps that apply to a credit card are those in effect in the state where the card is issued, and there is no bank left in Vermont that issues its own credit cards. And most other states, like Vermont, have removed credit card interest rate caps.
As a result of the lack of caps, some credit card offers come with rates higher than 32 percent—sometimes as high as 35 or 40 percent. Offers are often made in Spanish, inviting recipients to bank at an institution that speaks and understands their native language. While such offers may seem offensively exploitative – predatory lending – they might not be illegal. Fairness in lending laws is designed to preclude lenders from excluding customers on the basis of factors like race or ethnicity; this offer seems to be trying to “service” a possibly underserved ethnic or linguistic group.
Credit card terms are thus controlled by a contract, into which you enter when a financial institution issues you a card, and you agree to its terms by accepting the card and using it. And you continue to agree to any changes in those terms by continuing to utilize the revolving line of credit, either by maintaining an outstanding balance or by making new purchases. Most sources report that the average interest rate on American credit cards is 17 percent, with store and gas cards at 20 percent. But these rates are for the most part legal, and banks can charge them as long as you agree to them by using credit cards rather than bank loans, debit cards, checks, or cash, all of which are controlled by state statutory interest rate limits.
Money and Stress
According to Middlebury psychologist Marion Bauer, it isn’t uncommon for the woman to take on the financial responsibilities in a romantic relationship, as Susan Santiago did. “If the relationship continues as a loving relationship, then it may feel quite equitable to the people involved. But in many situations, there is a taking-advantage-of,” she said.
Bauer also felt that women were less likely to be aware of being taken advantage of, given their socialization as servers, nurturers and supporters. “I worry that women have greater money and resources but haven’t changed the way they think about using those resources.”
Bauer advises women to communicate more about money issues within their relationship. Talking about budgeting and money is “decidedly unsexy, but like cutting your toenails or flossing your teeth, it’s part of the marital package,” writes financial journalist Elizabeth Brokamp in her article, “Couples, Sex and Money,” published in the Motley Fool (www.fool.com) a practical investment advice online magazine known for its average-jane accessibility and wry sense of humor.
Bauer noted that most women deposit their paychecks into a joint account, but that, too, can lead to problems. “The two sources of power and control in a relationship are sex and money. When the relationship is not mutually affectionate, the sexual interactions can become a controlling issue, when one partner either withholds or demands sexual encounters from the other. And with money, it’s the same thing. This is when things that ought to be good are not good,” she said.
Things can also go bad when money is simply too tight. “You need a certain fundamental amount of money to meet your basic needs,” Bauer said. “If there is a shortage of funds such that those needs cannot be met, then there’s an enormous amount of stress on the individual, and on every member of the family.”
Bauer notes that there are other ways to seek assistance as well. “Here in Vermont we do have a generous support services network, and most--not all, but most--people can access support sufficient to meet their basic needs if they wish to,” she says. “But we also do have a fair number of what you might call the working poor, people who are working hard and making maybe a dollar more than qualifies them for services or assistance, and they have a very, very tough time.” For someone like Susan Santiago – whose income exceeds the qualifying levels for most assistance, but whose debt exceeds her income – stress and money indeed make for a very tough time.
Liveable Wage and the Debt Trap
‘Basic Needs Budget’ or ‘Liveable Wage’ is the amount of money which a person or family requires as income in any given geographical location to meet that person or family’s basic practical living expenses – rent, transportation, heat, food, utilities. The Economic Policy Institute published a book in 2000 on basic family budgets, of which a summary of how the budgets are ascertained and an outline of the Basic Needs Budget projects in many states around the country can be read at www.epinet.org.
The Vermont Liveable Wage project (www.vtliveablewage.org) has been developing and updating the Vermont Job Gap Study over the course of many years, calculating the income necessary to live in rural and urban Vermont and proposing courses of action to develop jobs that meet the necessary income levels. The Vermont Job Gap study calculates the liveable wage for six different family configurations. For a single parent with two children, the Vermont liveable wage is approximately $45,000. Necessary costs per child fall between $3,000 and $4,000, so for Susan Santiago’s family, the Vermont liveable wage would be about $52,000. With the average income in Vermont closer to $29,000, this is a difficult income figure for a single mother to attain.
What these projects demonstrate most forcefully is that a true liveable wage is far above the federally designated ‘poverty line’. Under the current rates set by the US Department of Health and Human Services, the poverty threshold for Susan Santiago’s family of five is $22,610.
The liveable wage is calculated as that necessary to pay ongoing household living expenses. When a large percentage of the household income is going toward debt reduction, even less is available to pay for basic needs. Susan Santiago’s income from teaching and several side jobs, which keep her working 14 to 15 hours a day, falls short of the Vermont liveable wage for her family size. If you deduct the amount of that pay going toward debt reduction, her actual accessible income may well be below the poverty line. Yet her income and assets would preclude her from receiving most public assistance or qualifying for bankruptcy relief. |
