Tips for Splitting Assets: When Entrepreneurs Divorce

The owner of the Los Angeles Dodgers, Frank McCourt, is in divorce talks with his wife Jamie, the CEO for the team. This power couple is one of 1.2 million husband-and-wife teams who run a business together, according to the National Federation for Independent Business. And when couples split, often so can the business.

John Moores sold the Padres earlier this year as a result of the petition for divorce his wife, Becky Moores, filed a year earlier. They then divvied up the proceeds.

It is rare that couples who divorce can remain doing business together. So, what should you do with your business assets if you divorce from your spouse with whom you do business? Here are some tips.

Buy the other spouse out. This is a good choice if one spouse started the business, or is more passionate about it. You can trade his or her stake for other assets, such as equity in the home or a greater share of the retirement accounts. Or you can take out a loan to pay cash.

Sell it and divide the profits. Some small businesses are tough to sell, especially in today’s economy, but if the company operates profitably, then it’s possible to find a buyer. Start seeking buyers sooner rather than later before any divorce animosity can tour the business sour.

Split it in two. This only works well if the company has separate units that can be spun off from one another. If you go for this option, you may want to have a valuation done to determine the worth of each unit. Because once the company is split and the divorce is final, it will be a lot harder to go back and make a claim to other business if yours fails and your ex-partner’s takes off.

Speed up the succession plan. Since many family businesses often name children as successors, a divorcing couple with adult children may be able to choose this option. Each spouse could possibly stay on as a silent partner with a small stake in the business, so long as you are willing to let your children run the business. This is hard to do even when divorce is not part of the picture!

Credit Card Co Offers Fixed-Rate to Lure Consumers; Is This a Good Deal?

Banks are hurting with the economy and are looking for ways to lure back consumers who have increasingly turned to debit cards and cash-only payments.

New Bank of America card sheds variable interest rate

This October, Bank of America rolled out its “Basic” card, which establishes for the life of the card one interest rate for all purchases, transactions and cash advances.

“For those consumers who just want the basics, our goal is to offer products with features that are predictable, easy to understand and help them manage their finances responsibly,” says Ric Struthers, president of Bank of America Global Card Services.

Other features of the card are:

• One interest rate — U.S. Prime plus a margin of 14 percent — that never changes for the life of the account. Rate increases and decreases will only occur if the Prime Rate changes.
• No over-the-limit fee.
• Easy- to-understand, single-page disclosure explains terms and conditions.
• One flat fee of $39 for late payments

Is this card a good deal?

The interest rate. At 14% plus prime, you’re looking at a 17% interest rate. There are some consumers out there with interest rates of 9.99% and 13.99%. If you have good credit, you could obtain a lower interest rate than this offer. However, if you typically have interest rates over 20% then this card could be a good deal for you…..if you qualify.

The late fees. Some cards, especially ones issued from community banks, have $15 late payment penalties. The $39 late fee on the Bank of America Basic card is one of the highest fees charged by banks.

Remember banks are in the business of making money, not losing money. Whatever card they issue, it is meant to be done in their best interests, not yours. The best thing you can do for yourself is either pay your cards off every month, at least make the minimum payment, or opt for cash. There’s nothing wrong with using your debit card if you have money in the bank to cover the purchases

5 Things to Know about Filing Bankruptcy

Comic by Dan Gibson @ DestroyDebt.com

The number of people filing for personal bankruptcy was up 36.5% in the first half of 2009 from the same period a year before, and more than likely that number will keep rising as people seek their own personal bailout from the recession. Here are a few things to know if you have ever contemplated filing.

1. More than likely, you will still have to pay something. Some people believe that filing bankruptcy means that they will get out of paying any of their debt. This is not true in most cases. Most people, those with some regular income or certain savings, qualify for a Chapter 13 bankruptcy, which puts them on a repayment plan. Although some of your debt may get reduced or consolidated, you will have to make payments on the remaining balance for about three to five years until the debt is paid off.

2. All assets could be liquidated. Although you can save your home and some other assets under Chapter 13, that is not always the case with Chapter 7—and you’ll still owe on some payments. If you’re without regular income you may be able to file Chapter 7 and avoid a payment plan on eligible debt, such as credit card balances, but will still have to pay on child support, alimony and most student loans. You also will have to pay your mortgage, but in some instances under Chapter 7, you could be forced to sell your home to pay off your debt. If you don’t have enough equity in your home to benefit creditors, don’t think that will save you. In some cases you will just be asked to move out, and your creditor will get to keep the home.

3. Bankruptcy can be better than debt settlement programs. Although I advocate for people to try to settle their debts directly with their creditors themselves, rather than choosing bankruptcy, if you don’t have the stamina to settle your debts yourself, you can opt to enter a debt settlement program. However, you should know that you would still have to make regular payments to the settlement firm before they will negotiate with your debtors. Once there is a settlement plan, you will have to pay taxes on the amount you saved. For example, if your debt was $10,000 and the settlement plan says you only have to pay $3,000, you will have to pay taxes on the $7,000 you saved. The IRS considers it income. If you file bankruptcy, you do not have to pay taxes on the erased debt.

4. You can’t hide your assets. If you’re filing bankruptcy, you have to reveal all of your assets. Selling off items for cheap, or to friends and family until you can buy it back later is not allowed. Anything you sold or gave away within a year of filing bankruptcy can be retrieved by the court or trustee. So if you repaid Grandma $1,000 rather than pay your credit card, the court can make Grandma pay back the $1,000 or risk getting sued. You could also be jailed for perjury.

5. You need money to file for bankruptcy. Most people don’t realize that lawyer fees for Chapter 7 bankruptcy could be $2,000 or higher. And guess what? That lawyer wants to be paid upfront, after all they want to be sure that they will get paid. Lawyers in Chapter 13 cases might just roll part of their fees into the payment plan. Chapter 7 lawyers can’t do that because you’re seeking relief from all debt, which would include their bill!

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Get Help Now

Not sure how to proceed now? Get free personalized financial coaching from the National Foundation for Debt Management (NFDM), a reputable non-profit credit counseling agency which negotiates with creditors, gets your interest rates lowered, and creates a plan to quickly get you out of debt. Since I am a spokesperson for NFDM, they’ve agreed to provide a free on-one-one counseling session to my readers and fans. With NFDM, there is no obligation to buy anything, and there will be no pressure on you to do anything. All you have to do is share your situation openly and honestly, and in return, I promise that you will get honest and real-world advice on how to handle your situation. To arrange for your free counseling session, click on this link http://www.themoneycoach.net/gethelpnow.htm to sign up for your free consultation.

5 Tips to Understanding What Affects Your Credit Score

You probably already know that not paying a bill can adversely affect your credit score, but do you know by about how much? Do you know what effect opening up a retailer charge card just to get 10% off on your purchase can have on your credit score? These are some things you should be aware of. Here are 5 tips that will help you understand how certain decisions can affect your credit score and what you can do to maximize your score.

Pay Your Bills on Time. Even if you can only make minimum payments, that’s better than being late with a bill because late payments of 30 days or more can drop your FICO score by 50 points or more. If you suffer from “Financial Deficit Disorder” and just can’t seem to get your bills paid on time, try setting up automatic bill pay.

Don’t Max Out Your Credit Cards. Since your credit score factors in your debt to credit ratio, try to keep your balances to no more than 30% of your available credit limit. For instance, if you have a card with a $10,000 credit line, make sure you don’t carry a balance of more than $3,000 on that card. If you can pay off your credit cards each month, that’s even better. But if you can’t, it’s better to spread out debt over a few cards, to maintain lower balances, rather than max out any one card.

Keep Older, Established Accounts Open. It feels good to pay off a credit card and finally get that statement showing a zero balance. However, if you pay off a creditor, don’t make the mistake of closing that account because 15% of your FICO score is based on the length of your credit history. The longer a credit history you have, the better it is for your score.

Avoid “Bad” Forms of Credit. I’m sure you’ve walked into a department store and been offered 10% off, or some other discount, just for opening up a credit card with that retailer, right? Did you take the bait? If so, realize that you might have hurt your credit score. Here’s why. The FICO scoring model rates some forms of credit more favorably than others. For instance, the presence of a mortgage on your credit report will help your score, but too many consumer finance cards (i.e., the cards issued by department stores and retailers) can hurt it. For this reason, do yourself a favor and say “No” to those credit card offers from stores you patronize. Just use a major credit card — like a Visa, MasterCard, American Express, or Discover Card — if you need to use credit to make your purchases.

Only Apply for Credit When You Truly Need It. Just because you get a pre-approved offer in the mail, or some telemarketer calls you to solicit for a credit card, doesn’t mean you should accept it. You should only seek out credit when you absolutely need it because taking on too much new credit – or even just applying for it – will lower your credit score. Each time you apply for a loan, whether it is a credit card, an auto loan, a mortgage, or a student loan, the lender pulls your credit report and generates an “inquiry” on your credit file. That inquiry remains there for two years. A single inquiry can lower your FICO score by up as much as 35 points.

A longer version of this post appeared yesterday on Gwyneth Paltrow’s blog, as “Top 10 Tips for Saving Money and Investing Wisely.” Read it and my other tips to her readers here.

10 Ways to Save on Your Purchases — Reader Participation Required for Success

A step toward becoming debt free is to cut your spending and maintain your new lifestyle. Some people feel it is too hard, say, to stop smoking, cut coupons and then remember to use them, or do your own home maintenance. So start with what you can handle.

You know your own vices and where you waste money when you could be saving. I can tell you what to do, but sometimes in order to motivate yourself, you need to take charge. As a result, I am giving you an exercise to determine how you can save on purchases or cut your overall spending for your own household. Come up with 10 ways to save and share part or all of your list with other readers by leaving a comment. Here’s a list of three to get you started.

Charge only what you can pay off. Getting a low interest rate on your credit cards can save you hundreds, even thousands of dollars a year in interest, but you can save even more if you don’t carry a balance. When you make purchases on your credit cards, be aware what you have in your checking account. If you will not be able to pay off the entire balance at the end of the month when the bill is due, then don’t buy the item.

Choose take-out or eat at home. Have you ever paid more than $5 for an omelet when you know a dozen eggs cost under $2? What about $15 for a plate of pasta when a box of Rigatoni and a jar of Ragu at your grocery store would feed at least four people and cost you less than $7 total? Eating at home can save you a ton of money. However, if you feel you really crave restaurant food, try buying take-out, and save on tips. You can even double your savings by getting take-out at lunch time when many restaurants charge less for the same meal they serve during dinner hours. Just save your lunch take-out for dinner.

Buy generic brands. Buying generic brand products, especially staples such as cereal, sugar, flour and other items can save you several dollars at the checkout lane without compromising quality or taste. Opting for generic prescription medicines are also a great way to keep money in your pocket.

Why You Should Answer a Summons on Debt Collection

If you can’t pay a debt, creditors are willing to settle out of court with you for a lump sum payment of less than the amount you owe, or a monthly payment plan, but they also will not hesitate to sue you for the full amount of the money you owe them.

So what should you do if you receive a summons and complaint from a creditor? Answer it.

What Happens If You Do Not Answer the Complaint
If you choose not to answer the complaint, the Court will enter a judgment against you, determining that you owe the creditor whatever amount they asked for. You may even be told to pay their attorney fees. The creditor can then use that judgment to garnish your wages, take money from non-exempt bank accounts or put a lien on your property.

If You Do File An Answer
If you answer the complaint (and you usually have about 20 days to respond to the plaintiff’s claims), you preserve your right to be able to argue your position in Court. You also will be notified of any future Court dates. You can use your time in Court to state why you don’t owe the money they claim.

What If You Do Owe the Money they Claim
Even if you do know for sure that you owe the exact amount the debtor claims, you can still use your time in Court to state another amount that you can afford to pay. Although typically if you admit you that amount, you will receive a judgment against you for said amount. The real leverage comes simply by answering. The debtor does not want to appear in Court no more than you do. They simply want to get paid. Once they see how time-consuming this may become for them since they are not receiving a default judgment, they may be more willing to enter a settlement agreement with you.

Debtors will take you to court for their money

What If You Don’t Have the Money to Pay?
It doesn’t matter if you don’t have the money. The debtor can still sue and the Court can still enter a judgment against you. Being broke is not an excusable reason to back out of your financial responsibilities, as the debtor is willing to shake the money out of you if it could. In cases like that you might just want to consider filing for bankruptcy instead. However, if in your financial statement and affidavit you can show how you don’t have the funds to pay, nor have a steady income, the debtor may be more willing to negotiate with you for a settlement plan.

What If You Offer to Make Monthly Payments?
A debtor does not have to enter into a payment plan with you. They can reject your offer and then sue you for the full amount. A debtor is more likely to reject a payment plan if they believe you have the means to pay, you have wages they can garnish, property they can attach a lien to, or a bank account they can raid. It is often, however, in the debtor’s financial interest if they reach a settlement plan with you if you don’t have the means to pay.

Try to settle a debt

Negotiate Your Debt
You’re in a better position to negotiate your debt before you stop making payments. However, if you’re receiving debt collection notices, that means you’ve already stopped. So, the older your debt gets, the better your chances are to get a good deal on a lump sum payment. At some point some creditors may have “written off” your debt as a bad debt expense. If they’ve written it off but then you come to offer to make a payment, they should be willing to take almost any amount from you, as any amount is better than no amount. If you’re offering a lump sum, try offering one-quarter or one-third of what you owe. Be careful with offering a monthly payment plan. Because if you miss a payment, the clock can start all over again for the full amount of the debt you owe.

If you need further guidance, sign up for a free consultation about how you can improve your financial situation.

RELATED ARTICLES
Free Financial Guidance
Statute of Limitations on Debt
You Can Stop Debt Collector Harassment
5 Tips if You’re Facing Court Action from a Debt Collector

5 Tips if You’re Facing Court Action from a Debt Collector

 

 

 

Comic by Dan Gibson @ DestroyDebt.com

 

 

Creditors can sell your debt. When your debt is sold to collectors, some might use the threat of court action to try to intimidate you in order to get you to pay up.  

Technically, it is illegal for collectors or creditors to threaten court action if they do not intend to carry through with it.  Taking you to court is time consuming and expensive for them, and there is no guarantee it will result in the outcome the creditor wants.  So typically, a court action is a tactic to get you to pay up, or to obtain a default judgment against you if you don’t respond to a summons and complaint.

Here are 5 things you should know in case you are presented with a court action.

1) Answer a summons and complaint.  If a creditor serves you with a summons and complaint, not merely a letter saying you owe debt, then you must answer within a certain timeframe set by your state laws (perhaps 10, 20 or 30 days), in order to avoid a default judgment. I’ll speak more on how to answer a summons in the coming days.

2) Know the statute of limitations. There is a time limit on how long creditors have in which to try to obtain a judgment against you for the money you may owe them.  That “statute of limitations” varies by state and type of debt.  Typically, it is anywhere from 3 years to 10 years. A creditor can use the limits in your state or the state where they are located. They will often use the state with the longest statute of limitations, because it is obviously beneficial for them. Click here for a state-by-state list of limitations timeframes for debt. 

3) Credit bureaus limits are not the same as debt statute of limitations. Federal law typically requires credit bureaus to drop negative information after about seven years from the date of your first missed payment. (There are exceptions, such as bankruptcies can stay on for 10 years, and tax liens can stay on for longer). If you live in a state with a 3-year statute of limitations on legal collection of debt, it will still show up on your credit report.  If live in a state that allows judgments to be entered for 10 years, it is possible the debt came off your credit report after 6 years.  So do not use your credit report to help you determine if you owe debt. You can use it, however, to check to see when the creditor first considered you to be delinquent.

4) Statute of limitations can start over. Please note that if you enter a payment agreement, make a payment — even a partial payment—, or promise to make a payment, you will restart the statute of limitations to day one.

5) Show up to court.  If you are sued, make sure you or legal representation on your behalf appear in court.  If you don’t, the court can issue a judgment against you for the full amount the creditor requests.  Even if you make a settlement agreement prior to court, don’t trust the debtor to notify the court that it has been settled. Appear in court for any date that was set and let the judge or trustee tell you to go home.

Statute of Limitations on Debt

Consumers often pay off debt for which creditors can no longer seek legal action because the Statute of Limitations has already expired for the account. Consumers pay off these accounts perhaps because the accounts still appear on their credit reports, they fear court action, or they simply don’t know their rights.  There are even cases of “Zombie debt” where agencies are claiming to collect a debt from years ago that one may have already paid off, or never owed in the first place.

Know the Statute of Limitations for your state or the state where a potential creditor is based.  The chart below provides links to various state laws.

 

STATUTE OF LIMITATIONS ON DEBT; STATE BY STATE

State	Oral	Written	Promissory	Open-ended Accounts	State Statute: Open Accounts
AL	6	6	6	3	§6-2-37
AR	5	5	5	3	§16-56-105
AK	6	6	3	3	§09.10.053
AZ	3	6	6	3	§12-543
CA	2	4	4	4	§337
CO	6	6	6	3	§13-80-101
CT	3	6	6	3	§52-581
DE	3	3	3	4	§2-725
DC	3	3	3	3	§12-301
FL	4	5	5	4	§95.11
GA	4	6	6	6 **	§9-3-25
HI	6	6	6	6	HRS 657-1(4)
IA	5	10	5	5	§614.5
ID	4	5	5	4	§5-222
IL	5	10	10	5	735 ILCS 5/13-205
IN	6	10	10	6	§34-11-2
KS	3	6	5	3	§84-3-118
KY	5	15	15	5	§413.120
LA	10	10	10	3	§3-118
ME	6	6	6	6	§5-511
MD	3	3	6	3	§5-101
MA	6	6	6	6	c.260, §2
MI	6	6	6	6	§600.5807
MN	6	6	6	6	§541.05
MO	5	10	10	5	§516.120
MS	3	3	3	3	§15-1-29
MT	3	8	8	5	27-2-202
NC	3	3	5	3	§1-52(1)
ND	6	6	6	6	28-01-16
NE	4	5	5	4	§25-206
NH	3	3	6	3	382-A:3-118
NJ	6	6	6	3	25:1-5
NM	4	6	6	4	§37-1-4
NV	4	6	3	4	NRS 11.190
NY	6	6	6	6	§2-213
OH	6	15	15	6	§2305.07
OK	3	5	5	3	§12-3-95
OR	6	6	6	6	§12.080
PA	4	4	4	4	§5525
RI	10	5	6	4	§6A-2-725
SC	3	3	3	3	SEC 15-3-530
SD	6	6	6	6	§15-2-13
TN	6	6	6	6	28-3-109
TX	4	4	4	4	§16.004
UT	4	6	6	4	70-09a
VA	3	5	6	3	8.01-246
VT	6	6	5	3	§3-118
WA	3	6	6	3	RCW 4.16.080
WI	6	6	10	6	893.43
WV	5	10	6	5	§55-2-6
WY	8	10	10	8	§1-3-102

** Georgia Court of Appeals came out with a decision on January 24, 2008 in Hill v. American Express that in Georgia the statute of limitations on a credit card is six years after the amount becomes due and payable

You Can Stop Debt Collector Harassment

Many people are well behind in paying their bills, but that doesn’t give debt collectors permission to harass you at work, late at night, after you’ve asked them to stop, or under other conditions.

What Debt Collectors Cannot Do

• Cannot contact you before 8 a.m. or after 9 p.m. your local time unless you give them permission or they have a court order to do so.
• Cannot call you at your job if you tell them your employer prohibits such calls.
• Cannot contact you if you tell them you have a lawyer representing you.

These, and other protections are spelled out in the Fair Debt Collections Protection Act (downloadable PDF file). I will highlight more of your rights over the course of this month.

Send a Cease & Desist Letter
To stop a debt collector from contacting you, write them a Cease and Desist letter telling them to stop all contact with you.

The first sentence of your letter should say: “I am unable to pay this bill because….” or “I refuse to pay this debt because….” and explain your reason. You also have the option of not giving a reason at all.

The second sentence should state: “I hearby assert my right under Section 805-C of the Fair Debt Collection Practices Act to request that you cease any further communication with me.”

After the debt collectors receive your “Cease & Desist” letter they cannot contact you except to indicate that the collection process against you has stopped or that legal action against you is moving forward.

For a sample Cease & Desist letter, see my book Zero Debt.

 

5 Tips for Saving when Unemployment is Rising

As we creep into Labor Day we learn that the unemployment rate rose in August to 9.7% from July’s 9.4%. The U.S. Department of Labor announced September 4 that this rate is the highest in more than a quarter century. There are now an estimated 14.5 million jobless Americans.

I know what it feels like to lose a job. In early 2003, I lost my six-figure television job as a Wall Street Journal reporter for CNBC. Like millions of others in corporate America, I, too, was laid off in a cost-cutting move.

After my layoff I didn’t immediately rein in my spending. I even made some serious money mistakes that I’d never advise anyone else to make. For example, I took $80,000 out of my 401(k) plan.

I tell you my story in the hopes that you won’t be ashamed of the money mistakes you’ve made or that you can even learn from the mistakes I made in the past and not even make them.

Here are 5 tips for saving if you’ve been laid off, fear you might or just need to save more.

1. Don’t raid your 401(k). If you lose your job, leave your 401(k) with the same account if you can. Otherwise roll it over directly to a IRA or Roth IRA without taking any as cash. You will have 20% withheld for taxes if you took cash. And there’s a 10% early withdrawal penalty if you’re under age 55, as well as the missed opportunity of tax-deferred growth.

2. Pay bills on time. I know that is easier said than done for some people. You can save hundreds of dollars a year on late fees if you simply pay your bills as you receive them or set up automatic payment plans.

3. Curb eating out. You can save $1,825 a year by cutting out an average of $5 a day on fast food purchases and $3,650 a year for an average of $10 a day. Take a week or two and track your restaurant spending habits. Tabulate every bagel and coffee. You might be surprised by how much money you’re wasting on these purchases.

4. Become a frequent library patron. Borrow videos, DVDs, CDs and books from the library instead of purchasing them. If you’re used to buying even just 10 DVDs a year at $10 – $30 a pop, or downloading 50 MP3 music files a year for $0.99 – $1.99, or renting several videos a month from Netflix or Blockbuster, you’ll save hundreds of dollars a year by simply borrowing them from the library instead.

5. Take a level-headed friend shopping with you. If you’re the type who just can’t stop spending, bring a friend with you who can keep you focused. Don’t bring the friend whose Visa bill is constantly more than her rent, but do bring the one who knows not to squander rent money for a new pair of shoes one doesn’t really need. A friend with a good head on her or his shoulders will keep you from making outlandish purchases and wasting your money. Take that friend’s advice without holding it against her or him.