Here’s my current situation. Years ago my dad got an authorized user card attached to one of his accounts. My credit was never checked and I never received any of the bills. Fast forward to now: my parents are filing bankruptcy and the CC company has decided that I am co-conspirator in this debt. Unfortunately due to general family turmoil it has gotten so far as the lawsuit stage and when I received service at my house the papers were missing and the judgement was filed against me before I knew that the case had even existed. Right now we’re in a legal battle to stop it from ruining my credit which it already is and getting me off the hook, plus protecting the small business that I own. Good Times.
Moral of the story. Don’t ever be an authorized user for a parent. Or anyone else.
Never, ever, ever, ever get your finances or credit mixed up in any other legal entity other than your spouse. And make sure you marry well.
My parents have lots of money, no debt, have war chests in multiple banks, and are as honest as a saint, and I wouldn’t co-sign a loan for them to buy a ham sandwich. They offered my wife and I to buy our mortgage and I said no way. NEVER mix your finances, never never never.
That is excellent advice but I would extend it to include never completely co-mingling your finances with your spouse as well. Everyone needs their own credit, retirement funds, emergency savings, and secret money for things like gifts. You may think that your spouse is your soul mate to end all soul mates and you will never have a bad day together to the day you die. However, your spouse may not see things the same way you do and may see the future more in terms of the current office flame. It isn’t rare and happens all the time even to the best of superficially great relationships. You will never know what hit you.
Manage some of the crucial fiances yourself. If you never get divorced and your spouse never develops a drug or gambling addiction, things work out great. If you end up getting divorced, you were smart for doing it that way. You can’t lose.
A neighbor of my family died while incarcerated for vehicular manslaughter. She was confined to a wheelchair while incarcerated due to injuries suffered in the same accident. She had previously been married, and had aquired the property that adjoined our property (including the house that was on it) in the divorce. The property and house had originally been gifted to her and her ex-husband by the ex-husband’s father.
My parents were able to invest most of a timely family inheritance (about $50k, back in the late 80’s) by purchasing the property and house in a court sale to pay off her creditors.
The way the court sale was announced was in the back of a rural local newspaper where not many people have much money to throw at a piece of land in the middle of nowhere. My parents were informed of it because they and 4 other land owners who’s property also touched the parcel being sold were mandated by law to be informed of the pending sale.
None of our neighbors wanted or could afford to bid on the property. Only one other party did bid, and he bid lower than my parents. He was the ex-father-in-law who had originally gifted the land as a wedding present to his son. I guess he couldn’t bring himself to pay more in order to buy the same land twice?
Anywho, my parents got the deal of a lifetime on an adjoining 40 acres and a 2nd house.
The other moral of this story is that even when the estate is liquidated to pay off creditors of the deceased, the creditors are often not getting anywhere near what the value of the estate items actually are.
Your advice is pragmatically sound, but risk is the spice of life and love requires risk. If you truely live your life like that I feel a bit sorry for you.
Assume you’re a lying deadbeat and sell your debt to a collection agency. I’m guessing that someone somewhere may have lied about being dead to avoid a debt. Of course, if they sell your debt to a collection agency, and you actually are dead, you don’t have anything to worry about.
While I completely agree with this, I don’t agree with the reason [possible nasty divorce]. I just think grown-ups should manage their own money. And grown-ups should have their own money; I don’t expect to need to justify how much I spent on a new suit or dinner with a friend.
[But, yeah, nearly 50% of the people who get divorced are surprised]
OK, it seems that if someone dies their children aren’t saddled with their debts. But then why do I see commercials for supplemental life insurance, where the potential buyer talks about “all the bills I’ll leave behind?” This is always mentioned in addition to burial expenses and medical costs, so that can’t be what they’re talking about.
Is this just a scare tactic to make people think they’ll die and their children will be liable for the mortgage, credit cars, etc?
I agree with that as well. However, I had a huge numbers of case studies that I wanted to bring up (Dad just concluded divorce number three and is an heir; grandfather is on number 5 and is quite wealthy as well). I don’t want to bore anyone with the huge real world realities of the affluent marriage breakups that I have known over the years. I will just share the latest one.
A wealthy New Hampshire couple that are friends of ours owned their own horse and cattle farm. They were in semi-retirement but worked together to build a picturesque estate with their new-found time after owning a construction business for years. Everyone always commented on how happy and beautiful their relationship was. She walked in one day last year and announced both their divorce and a new-found love for another man. That may have been bad enough but she also revealed that their 33 year old daughter wasn’t his. The daughter was the result of another affair long ago.
He was financially destroyed and lost the farm and everything else because the fiances were hopelessly co-mingled. Never trust a spouse (or anyone else) completely when it comes to financial matters. At the least, you simply maintain control over assets yourself and share like any married couple should. At the worst, you have protection when the unfortunate comes. There is no downside and pretending that all love is forever is simply a 7th grade mentality.
I am not sure why people react badly to this view. It seems like common sense. My wife is and heiress and I am an heir. Hers will probably be many times bigger than mine. I will get mine in 6 years and plan to spend it on our young daughters education and building a family safety net. Here will be somewhere in the low millions and the timing is uncertain. There is no way I could ever lay claim to her family’s inheritance and property including a 300 acre family farm. That is for her and our children no matter what happens. She is also a savvy stock investor (loading up with Apple stock a year before the Ipod hit for example). She freely shares that as family needs dictate but it isn’t mine and it shouldn’t be if I have an affair with a coworker.
The best that I can tell, co-mingling all assets is based on some philosophy that I don’t think is smart or appropriate for real-world circumstances. The down-side to having some separate finances that you share freely as long as it is appropriate is always the smartest move and even the kindest because money disputes can cause pain to all involved if they aren’t worked out up-front.
To the best of my knowledge, the answer in the US is: Maybe. I think a gift given in contemplation of approaching death is pulled back into the estate, but if the gift is part of an established pattern of gift-giving it’s not pulled back in. IANA tax lawyer, tax law changes frequently, etc.
Silly child, don’t you know that you’re supposed to turn your brain off while watching commercials? You’re not supposed to think about them and evaluate whether they make any sense or not.
(In other words, yes, I think scare tactics is exactly the right term. As far as I’m concerned, insurance companies are the biggest scam artists around.)
I don’t know that being heirs to multi–million dollar estates is “real world” either: lots, dare I say, most, people don’t have estates that are so large and from such diverse circumstances that you really need to worry which family legacy such-and-such money came from. I do think that both people in a couple need to be able to support themselves and have a credit history and an understanding of the family finances–because anything could happen–but I don’t think that your averagge middle-middle class couple whose single biggest asset by far is a house are taking a huge risk by having a single checking account and no pre-nup, assuming both came into the marriage with nothing signifigant (as is the case in most marriages).
Well, if people get the idea that they need to protect their children from their inheriting their debts, I’m sure the insurance companies won’t mind.
But final medical expenses and other outstanding bills frequently are left behind, just to the estate and not the children. In this case, they reduce the value of the estate, possibly to zero. The children or remaining family would then inherit that much less or nothing, depending on the size of those outstanding debts.
Also, the cost of the funeral and burial, if not prepaid or covered by insurance or other preplanning, is typically also paid by the remaining family.
So extra insurance set up to cover these things may in fact save your family money, even if it has nothing to do with them inheriting your debts directly.
Whether or not this is a good way to do things varies much with every individual.
Although there is a strange IRS case where you can be responsible for the estate taxes. As I recall, if your parent gives you money before they die and in doing so exceeds their unified credit (therefore the estate is subject to estate taxes), but doesn’t leave enough in the estate to pay the estate taxes, the money they gave you (to the amount of the tax) will be owed to the IRS.
Its to keep people from skirting estate taxes by giving a large gift at end of life, and then the IRS being unable to prosecute a dead person. But the IRS can do that - Visa can’t.
I am aware of this, I was keeping my answer fairly general in nature. In another instance of the IRS using it’s long arm to collect taxes, someone posted at a legal forum I frequent about the IRS requiring the heirs of an estate to buy back some property that was sold prior to a death. The soon to be departed had a small collection of art and other collectibles. These were sold at a discount to pay off some debts that one of the heirs could be held liable for. At the probate hearing this info was presented while a representative of the IRS was present. The IRS then pushed the probate into a federal court which ordered the buyback of the property so it could be sold at fair market value with the IRS getting first crack at the revenues from the sales. The poster was one of the folks that bought one of the items and they wanted to know whether a federal court could force them to sell back the item for the same price they paid for it. The answer proved to be yes.
I would also like to add something to the question I answered about medical bills, this comes from closehand experience. My wife’s aunt was in failing health and was transported to a hospital for what would prove to be the last time. Upon admission, the aunt was to far gone to sign any of the admission papers, my wife’s cousin signed the admission papers. The aunt passed a few days later and the cousin was tasked to find a funeral home to come and get the body. But before the hospital would release the body, the cousin had a $3,000 hospital bill to pay. It seems one of the papers she signed was an acceptance of financial responsibility. The cousin found out after paying the bill that she did not have to sign anything to have her mother admitted. That is something that should be remembered if you have to admit a loved one into a hospital or other care facility.
Well, they do, so they will not be persuaded to maintain personal finances and responsibility by the spectre of divorce.
[People react badly to the view because it implies they will be dumb enough to marry someone who is too weak, venal, or unethical to keep the marriage going through the rough, or even just boring, times.]
Manda, the average middle-class couple will be on much shakier ground, especially if they have children, because they will probably be spending limited funds on two lawyers.
