Protecting your credit in a divorce

Dear Liz: I’m getting a divorce and my soon-to-be ex-wife has stopped making payments on a car loan that’s in my name. I can’t afford to make the payments, and now the lender is calling. If the car gets repossessed, will that affect my almost-perfect credit and will I be able to get that off my credit history after the court settles our divorce?

Answer: Sorry to be the bearer of bad news, but your “almost perfect” credit became history as soon as she missed the first payment. If your name is on the loan, you’re responsible for making sure the payments get made. If you fail to do so, that fact will be reflected on your credit reports and will result in a significant drop in your credit scores. A repossession will just make matters worse.

Furthermore, it doesn’t matter what your ultimate divorce decree says about who’s responsible for paying what bill. Creditors typically don’t have to pay attention to outside agreements made after you’re approved for the loan. So if you want to protect what’s left of your credit, you’d better figure out some way to catch up on the back payments and to keep current going forward.

You should make sure any other joint credit obligations are covered too. Well before the divorce is final, you’d be smart to close any joint credit card accounts and refinance any mortgages that list you both as responsible for the debt.

Orderliness saves money at tax time

Dear Liz: As a CPA with 30 years’ experience, I’d like to offer a few additional thoughts on the topic of how to pick a tax preparer. It is important to know how a preparer charges because some preparers charge hourly rates while others charge based on a fee schedule that considers what forms are in the return. If you’re paying by the hour, your total cost depends on how organized you are as well as on the complexity of activities being reported.

High-maintenance clients – those who provide information piecemeal and who require multiple meetings, e-mails or phone calls to obtain missing data or discuss the returns – are adding to their own costs. If someone requires a lot of attention, he or she should expect to pay accordingly. Also, it costs more to switch tax return preparers each year because the preparer will need to obtain data about the past, set up files and get to know the client. It’s important to find a good preparer and then be a loyal client.

Answer: Good points all. The original reader had just been through a divorce and was working with a new tax preparer – both factors that would increase the complexity and cost of a return. She may discover that she can get the best deal by staying with the preparer she has and providing all the information needed upfront.

AARP program does taxes free

Dear Liz: There’s another alternative for tax preparation you haven’t mentioned. The AARP Foundation, in cooperation with the IRS, offers free tax preparation (federal and state) for people with relatively straightforward tax returns. The program is offered mainly through senior centers, but anyone can make an appointment to have his tax return prepared free. The returns are even electronically filed at no cost to the taxpayer.

Answer: AARP’s Tax-Aide program is part of the IRS’ Tax Counseling for the Elderly, which together with the Volunteer Income Tax Assistance program provides free tax preparation for millions of people each year. The services are, as you noted, targeted at people with relatively simple returns and are most appropriate for those with low or middle incomes.

You can call (800) 829-1040 to find the VITA or TCE site nearest you, or call the AARP at (888) 227-7669 to find the closest Tax-Aide site.

Fee-only planner is worth the cost

Dear Liz: I’d like to address the reader who was astonished at the high fees that fee-only planners charge.

My husband and I are middle-income earners, and we chose a fee-only planner. Yes, I had a sick feeling in the pit of my stomach when I wrote that $2,500 check, but it was worth it because every penny we earn now in our retirement account is ours; we pay no broker commissions.

Think of it this way. If you pay an attorney for advice, you don’t keep paying him every year for the same advice. If you go with a broker or fee-based planner who accepts commissions, it’s like paying over and over for the same advice. Over a period of years, you may pay the same or more than with a fee-only planner.

Answer: Thanks for sharing your experience.

Weston is the author of “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.asklizweston.com. Distributed by No More Red Inc.