9/23/2011 11:48 AM ET|
Is your spouse hiding debt?
When a husband or wife owes major amounts of money but is keeping the problem secret, marital honesty is undermined. Suspicious spouses should watch for warning signs.
One spouse took more than $50,000 in cash withdrawals on credit cards to pay for a gambling habit. Another stole his wife's credit card to use at a racetrack. A third racked up big debts paying for online dating sites and porn.
Those are just some of the stories my Facebook fans shared when I asked if a spouse or partner had ever hidden a debt.
Perhaps not surprisingly, a lot of those spouses are now exes.
"It's not always the amount as much as it is the trust factor that is gone," one woman said, "and (that's) very hard to rebuild."
Lying about money and spending is fairly common. About one in three Americans who had combined finances with a spouse admits to fudging the truth about some aspect of his or her money management.
But lying about debt is relatively rare. More than half of those who lied say they hid cash or a minor purchase, according to an online poll for ForbesWoman and the National Endowment for Financial Education that was conducted by Harris Interactive in December 2010. Only 11% of those who admitted lying say they concealed a debt.
Secret debts can be the backwash of addictions -- to alcohol, drugs, gambling, sex. Or they can be a byproduct of relationship or personal problems.
"Money problems are never about the money. They are always about the underlying issues that drive us to spend," said debt expert Steve Rhode, who runs GetOutOfDebt.org. "People take on new hidden debt typically to use spending as a way to reduce stress, improve self-esteem with things or distract themselves from other problems."
Maybe there are dysfunctions in the relationship that neither partner is yet willing to face.
"It could be they feel like their spouse or partner is too controlling. It could be that they are trying to mask other problems in the relationship with retail therapy," said Gerri Detweiler, a personal-finance expert for Credit.com and co-author of the e-book "Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights." "Or it could be that they don't have enough discretionary spending money -- a potential problem when one spouse earns a lot more than the other."
Secret debt is a wedge between two people who are supposed to be honest with each other. Even if the partners keep their finances strictly separate, a hidden debt can make it hard or impossible for the lying spouse to contribute toward joint goals, such as vacations or retirement.
And the thing is, hidden debts have a way of eventually surfacing. The unknowing spouse intercepts a bill or a call from a creditor. Or maybe the secretive spouse finally has to fess up when he or she can't keep up with the payments.
"Whatever the root cause, it's important for the spouse with the hidden debt to come clean, perhaps with the help of a therapist or counselor who specializes in money issues," Detweiler said. "Rarely does the problem get resolved on its own, and often it can affect the other spouse financially."
If you suspect your partner is hiding debt, here are some warning signs to watch for:
Money is a taboo subject. Author Barbara Stanny remembers how touchy and antagonistic her now-ex-husband got whenever she asked a question about money. "If they refuse to answer your questions or they get defensive, angry, accusatory, that's something to pay attention to," said Stanny, who wrote the book "Prince Charming Isn't Coming: How Women Get Smart About Money" after her husband siphoned off her trust fund -- she was an heir to an H&R Block co-founder -- and left her with a $1 million tax bill.
When her husband did deign to answer her questions, she found his responses incredibly confusing. "That's why it's so important to get educated about money," Stanny said. Her husband's answers were double talk, but she didn't know enough about money at the time to realize that. She just thought she was stupid about finance.
Your partner spends erratically, outrageously or constantly. "If your spouse seems to always be shopping or going out with friends or the kids, they could be hiding purchases on credit cards, including retail cards, they've taken out without your knowledge," Detweiler said. If your spouse frequently plays the big shot, picking up tabs or buying fancy bling, that should be reflected in your bank or credit card statements. If not, you should ask why. Another sign is new items appearing around the house but the charges not showing up on any accounts you know about.
Your partner rushes to get the mail first. "They insist on collecting the mail and sorting through it before you get the chance," Detweiler said. Or they get a separate mailbox account but don't let you have a key.
Something just doesn't add up. Plenty of families have trouble getting their paychecks to stretch through the month. But if you make decent money, have reasonable expenses and still come up short, hidden debt may be the reason why. "If you think you should have more left over at the end of the month and you don't," Rhode said, "money may be vanishing to fuel your partner's spending or debt."
Creditors are calling. Who could ignore this red flag, right? But your partner may explain it as a case of mistaken identity or a misunderstanding that will be soon cleared up. Maybe, or maybe you're about to get sued.
Your liability for your spouse's secret debt varies by the type of debt, how it was acquired and your state. In community-property states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- debt incurred during marriage is typically considered joint debt, even if it's in just one person's name. In other states, debts in one person's name are typically separate.
But there are exceptions in both types of states. Divorce expert Ginita Wall of San Diego had a California client whose husband had incurred tens of thousands of dollars in credit card debt by bailing prostitutes out of jail. Since his little hobby didn't benefit the "community" of their marriage -- quite the opposite -- the divorce court ruled it was his debt alone.
In states that don't have community-property laws, debts of one spouse still can become the other's responsibility, if the money was spent for "family necessities" such as food, clothing or shelter, or was used to maintain jointly owned assets. Books like Nolo Press' "Divorce & Money" by attorney and financial planner Violet Woodhouse can help you figure out your liability. Or you can talk with a divorce or bankruptcy attorney about your state's laws regarding debt.
If you're still in the dark about whether your spouse is hiding debt, or how much, here are some ways you can uncover the truth:
Review your credit reports together. Most debts will show up here, with the exceptions of retirement-plan loans, loans to family members and illegal debts, such as money owed to criminal loan sharks.
A spouse who balks at sharing credit reports is "a good, clear signal that we're not sharing things the way that we should be," said Wall, a CPA and certified financial planner who co-founded WIFE.org, a financial-education site for women.
Even if your partner won't cooperate, you can at least look at your own credit reports to see if there are accounts you don't recognize. One woman's husband forged her name on seven credit cards and a second mortgage before she caught on.
Check your paperwork. If your spouse took out a secret retirement-plan loan, the payments would show up as deductions on his or her pay stubs. You should scan bank and credit card statements as well. Mysterious deductions or big cash advances from these accounts are signs something's wrong.
If all else fails, do a "midnight audit." What if your mate is secretive about paperwork or won't give you access to your accounts? It may be time to do what Wall calls a "midnight audit," which means snooping around when your spouse is asleep or out of town. She advises making copies of any financial paper that seems relevant.
Even if you don't understand what a financial document is all about, you can take it to a financially savvy friend or an attorney for decoding.
All this assumes that your partner isn't violent and that you aren't worried about getting physically hurt if your activities are discovered. If you are worried about that, you should contact your community's battered-spouse hotline for advice.
Otherwise, keep in mind that it's relatively hard to keep debt hidden from a determined searcher.
"Things show up," Wall said, "when you open your eyes and look."
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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