My former husband has lived in our house since we divorced in 2004. Problem is, we never refinanced the house in his name only. Now he is five months behind on the mortgage. Can I get this delinquency off my credit report? Our divorce decree gave him full financial responsibility for the house. I want to purchase a house this summer and I'm afraid this is going to hurt me.
M.V., via e-mail
Unfortunately, there's nothing you can do about the harm that's already been done to your credit. A divorce decree is an agreement between the divorcing couple, but "it does nothing to separate their assets, accounts or financial obligations," says Maxine Sweet, of the credit bureau Experian. Despite the decree, your name is still on the loan, so you're liable for all the payments, and the mortgage company is unlikely to remove the delinquency from your report.
Because your ex is more than 90 days late on the mortgage payments, your credit score has likely taken a major nose dive. If the house is foreclosed on, you probably won't be able to buy a house for at least a few years, says Emily Davidson, of Credit.com.
Try to get out of the situation by asking the lender if you can be taken off the mortgage. Or you might try to refinance in your former spouse's name only. But that could be difficult because of his poor credit.
Another option is to go to court and ask the judge to order your former spouse to sell the property before it is foreclosed on. Or perhaps your ex-husband would be willing to give the house to you and have you make the payments. You could rent it out until it's sold.
Divorcing couples should never rely on one spouse to pay a joint debt. Tackle the issue upfront -- by agreeing, for example, to have one spouse refinance within a certain time period or sell the house.
Quintuple my money?
I have saved $78,000 for my 10- year-old son. Is there an investment that would grow to five or six times that amount before he reaches age 21?
Felicia Stewart, Ocala, Fla.
That's an ambitious goal. To quintuple your son's money in 11 years, you'd need an annualized return of 15.8%; multiplying his investment by sixfold would require a return of 17.7% per year.
To put those numbers in context, large-company stocks, as measured by Standard & Poor's 500-stock index, have returned 10.4% annualized since 1926. Small-company stocks have returned 12.5% a year. Don't bet that stocks will deliver annualized returns of 16% over the next decade.
To achieve that result, you'd have to own a small portfolio of individual stocks that deliver outstanding returns; bet successfully on a battered sector of the market (financial stocks, for example); or find a savvy money manager who's willing to invest aggressively outside the box (for ideas, see "Triple Your Money," May 2007).
Taxes on partnerships
Are distributions from master limited partnerships taxed differently than regular stock dividends? And what about inside an IRA?
Paxton Payne, Allen, Tex.
An MLP is a publicly traded limited partnership that combines the tax advantages of a partnership with the liquidity of a publicly traded stock. An MLP's pass-through income is not subject to corporate income taxes. Instead, owners of an MLP are responsible for paying taxes on their individual portions of the MLP's income, gains, losses and deductions, all of which are detailed on the K-1 form that the partnership mails to investors each tax season.
Holding an MLP inside an IRA can create tax complications. In most cases, income generated inside an IRA is not taxable, but all withdrawals from traditional IRAs are taxed at ordinary income-tax rates. But if the partnership generates "unrelated business income" in excess of an annual $1,000 exemption, the IRA is taxed on that income as a trust, which pays higher rates than individuals. The top 35% rate kicks in when trust income tops $10,700, compared with $357,700 for individuals.
I will be turning 701/2 this year. Do I have to take my first IRA distribution in 2008 or in 2009? Everything I have read indicates that no minimum distribution is required this year. Does that mean I will need to take two distributions next year?
D.M., via e-mail
You're exactly right. You don't need to take your first required minimum distribution until April 1 of the year after you turn 701/2. For you, that means April 1, 2009. But you'll also need to take another distribution (for age 71) by December 31, 2009.
To calculate how much money you need to withdraw each year, add up the balances in all your traditional IRA accounts (both deductible and nondeductible) as of December 31 of the previous year and divide the total by the life-expectancy numbers you'll find in the IRS tables for someone your age. For your first withdrawal, that's the balance as of December 31, 2007, even though you have until April 1, 2009, to take out the money. See IRS Publication 590, Individual Retirement Arrangements (IRAs), for more details.My thanks to Mary Beth Franklin and Manny Schiffres for their help this month.
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