Expert: Chris G. - 11/16/2007

Question
QUESTION: Chris: I have discovered that my wife was unfaithful to me; while this was happening, she simply told me one night that she has given up on paying our bills and I am now in charge for the first time-after 17 yrs of marriage,(she has "generally" paid on time in all that time). During that time, we did have to go through consumer credit counseling about 7 yrs ago because she got overwhelmed handling the bills during pregnancy etc. and refused my help on numerous occasions. It didnt break us, but it has taken that long to bring my Fico scores up about 100 points to about 690.(at the time, she had very little credit, now she has gone back to her old ways by opening up charge cards at many fine retail establishments and has now put us behind in payments on the essentials in life by 2-3 months!) I am faced with negotiating where I can, and in other cases it is simply not possible. I will have to take a loan out against my 401k in order to remain solvent. Keep in mind that we will be divorcing once these bills are up to speed and we can afford to sell our home despite 3 kids!...Is this a good angle from your view, to use the 401k?

ANSWER: Dear Greg,

Thanks for the email. It seems like you guys are in quite a mess. To answer your short question, I would not recommend that you take a loan out on your 401K unless it is your last resort.  The reason for this is because if you're investing the 401K in good mutual funds, your money is probably making you around 12% average.  The loan that you will take out will have a much lower interest rate than that, so you won't be making as much towards your retirement.

What I would recommend is that the two of you get on a strict budget and start telling every dollar of your income where to go. You or your wife might need to work an extra job to temporarly get your income up until you get out of this mess.

I understand that your wife and you will probably get a divorce once the financial matters are sorted out, but you need to be working together right now to fix this financial crisis.  

Pick up a copy of "The Total Money Makeover" by Dave Ramsey.  It will show you how to budget, get out of debt, save and build some real wealth.  You should be able to get it at most bookstores.  

I hope this helped.  Sorry you're going through this.  Let me know if I can help you in the future.

Chris

---------- FOLLOW-UP ----------

QUESTION: Chris, Thanks! couple of follow-ups-I have begun using MVelopes as a solution to the mess-what is your assessment. Also, how do I get my wife to cut her cards? she refuses(under our circumstances) and is not quite convinced believe it or not of the situation...I kid you not. Also, what moves would you make right now in my situation to ensure she does no further damage in my pending divorce..

ANSWER: Greg,

It is funny that you would mention the Crown MVelope system.  I was just looking at that the other day.  It appears to be a great resource and I trust anything that comes from Crown.org.  That is a good place to find plenty of resources to help you through your journey.  As a matter a fact, you can pick up a money map off there that will lead you through an excellent journey to recovering your finances (that might be included in MVelopes.)

As far as your wife's cards, if she won't cut them up, and you are on the cards with her, then write the company and have them close the account.  Even if the card is not paid off, you can "close" the account so that the card can no longer be used.

I do not specialize in giving divorce related financial advice, but I can throw out there to make sure that any new debts you occur (or accounts open) should be separate.  That way, if your wife chooses to rack up any more debt, it will only be in her name (and only she will be liable for it.)

Hope that helps Greg.

Chris

---------- FOLLOW-UP ----------

QUESTION: Thanks-Chris. Just one last thing-The credit cards are only in her name, but because we are married, I am ultimately just as liable in a common law state as she is. Any suggestions for those cards in particular since she will not cut them up?

Answer
I do not know exactly how the laws work in your state.  However, when your wife signed up for her debt, she signed a legal contract that you did not sign. A marriage does not automatically add the spouse to a contract.  In the same way, if you get a divorce, the court will not be able to remove either of your names from joint debt unless it is refinanced in only one persons name.

I would doubt check with an attorney in your state to make sure that you will not be liable.  If you are, you might want to discuss with him or her what to do in your special case.  There isn't much worse feeling than knowing that you're liable for someone else's debt and having no way to get them to stop. Hopefully it will get better for you.