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Even When a Spouse Dies, Debt Lives On
The death of a loved one is a paralyzing event. Many
survivors find it difficult, if not impossible to start dealing
with the financial after-life of a spouse even if they've planned
extraordinarily well.
Consider then, the one single element that can turn this
difficult process into a lengthy nightmare and potential
financial disaster for a surviving spouse — the deceased's
outstanding debt.
Married couples — particularly those who hold credit cards
jointly and keep month-to-month balances on them — really need
to pay attention. And we're not simply talking about elderly
spouses. A spouse can die at any time.
The earlier a married couple focuses on the joint issues of
credit management and estate planning, the better. And a
financial advisor like a CERTIFIED FINANCIAL PLANNER™ can tie
the necessary elements of estate, retirement and debt planning
together because they absolutely need to be.
While the following information can be a guide for
individuals who have lost a spouse, it's a much better guide for
couples in good health who want to alleviate major financial
problems for their survivors later on.
Just remember: The worst time to deal with joint or separate
credit issues is after the funeral. Some key points to consider:
Joint credit in moderation…or not at all. If spouses
have separate credit, then their rating won't be affected by the
spouse's bad credit behavior (late payments, charge-offs,
bankruptcies, etc.). Joint credit leaves the surviving spouse
with a total obligation for any debt remaining on a car loan,
credit card, mortgage or any other kind of debt.
Watch those "additional card" offers. Again,
it might seem like a great idea for both spouses to carry credit
cards on the same account, but in death, outstanding balances
are often treated the same way as joint account is. It's not
unusual for an issuer to come after the holder of the additional
card for that outstanding debt.
They will find you. You've never met Big Brother until
you've tussled with today's toughened-up lenders. Particularly
as problem credit has grown to epidemic proportions, credit card
companies in particular have gotten a lot better about
determining whether customers have died so they can make a claim
against the deceased's assets. Most states have specific laws
that put a timetable on a lender's ability to make claims
against an estate, and executors may have certain
responsibilities under those laws to inform those creditors. A
planner or estate attorney can help you go over those
requirements in your home state as you're addressing your
estate, retirement and debt issues.
Keep in mind that keeping separate credit won't protect
the estate's assets. Granted, a deceased partner's bad
credit may not affect your ratings on your separate accounts,
but creditors will go after the assets of your shared estate to
settle up. So what's the message here? Keep debt under control
at all times.
If the worst happens, what's the process? It's
important to contact all lenders swiftly to let them know your
spouse has died for several reasons. First, identity thieves are
getting more sophisticated about checking death notices and
tracing that information to their credit accounts. Dealing with
a deceased spouse's debt is one problem. Dealing with an
identity theft calamity based on your spouse's accounts is even
worse. Also, if you do have joint accounts, ask the issuer if it
will issue the card in your name only, and keep in mind that you
will still need to maintain payments on those balances to
preserve your credit rating as a single person. Lastly, lenders
tend to look askance at customers who fail to make disclosure of
a spouse's death. So no matter how tough things are, you need to
make these calls.
What about the last joint accounts? For joint
accounts, removing the deceased's name from the account should
have no impact on the survivor's credit score, but the survivor
should think twice before he or she closes the account, because
it cuts back the amount of credit available to the survivor.
Just get rid of the debt. Debt-free is the best way to
go through any crisis. Couples should strive to be debt-free not
only for the good times, but for the awful ones as well.
July 2009 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
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