Debts incurred before marriage won’t affect future spouse
Dear Liz: A couple of years ago my fiance lost two investment properties due to the housing bust. One house was lost to foreclosure, and the other was sold in a short sale. He has delayed our wedding because of his fear of tax ramifications that would, in his mind, affect my clean record and good credit score. Is he right or is he just delaying our wedding for a bogus reason?
Answer: Let’s be generous and just assume your beloved is a bit misinformed.
Foreclosures and short sales of investment properties can indeed result in tax bills if the proceeds of the sale aren’t enough to cover the mortgage and the resulting deficiency is reported to the IRS. This “forgiven” debt typically would be treated as taxable income to the debtor, unless he or she was insolvent.
But debts incurred before marriage, including tax debts, are the sole responsibility of the person who incurred them. And since there’s no such thing as a “joint” credit report — each person has his or her own — these debts won’t appear on your credit records or affect your credit scores.
That’s not to say pre-marriage debts won’t affect you as a couple, since the money spent on repaying these bills won’t be available for your other, joint goals.
It’s not clear from your question, however, whether he is indeed facing tax bills as a result of losing these properties or simply fears that he might. Another possibility is that he may be sued over any debt that he owes his mortgage lenders. Consultations with a tax professional and perhaps with an attorney familiar with real estate law should help you both get the facts. After that, you jointly can get started on building a plan to deal with his liability, if any.
Of course, if he delays making those appointments, you’ll get a pretty clear answer to your question.
Dear Liz: Why are banks not offering a higher interest rate for savings accounts? Why so darn low?
Answer: Blame the economy. Both individuals and businesses are wary about borrowing money. Less demand typically drives down the cost of a product. The product in this case is loans, and the price is the interest rate. With little demand for loans, banks don’t need to compete much for depositor funds and so aren’t paying much on their deposit accounts.
Another big factor is the Federal Reserve, which is keeping interest rates low to try to stimulate borrowing, spending and the economy. The Fed’s big fear is that higher interest rates would choke off the economy’s recovery and send us spiraling into another recession.
How long will this low-interest period last? Nobody knows. We could see higher interest rates if the economy really takes off. In that case, higher demand for loans probably would bid up interest rates and the Fed would switch its focus to containing inflation, which typically means it would try to raise rates further. Many economists are predicting a slow recovery, however, which means low savings account rates are likely to be with us for a while.
In the meantime, you can look for slightly higher rates at sites like MoneyRates (https://www.money-rates.com) and Bankrate.com. Recently the national average for one-year certificates of deposit was under 0.5%, but several financial institutions on those sites were offering rates above 1%.
If you’re being offered rates much above that level, you’re either dealing with a riskier investment or being asked to lock up your money for a considerable period. Neither is a good idea if this money is your emergency fund or you otherwise need it to be safe and accessible.
Dear Liz: I am in the process of paying off a huge debt on my credit cards. Will it help me get a better credit score if I pay it all off at once?
Answer: Typically, yes. The sooner you can lower your credit utilization — the amount of your available credit you’re using — the sooner your credit scores are likely to improve. Continuing to carry a balance doesn’t help your scores; it just hurts your wallet as you pay unnecessary interest.
Liz Weston is the author of the upcoming book “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via the “Contact Liz” form at asklizweston.com. Distributed by No More Red Inc.
