How hidden debt can ruin relationships
by Ron Lieber
The New York Times - Wed Sep 8th, 2010 3:00 AM EDT
Nobody likes unpleasant surprises, but when Allison Brooke Eastman's fiancé found out four months ago just how high her student loan debt was, he had a particularly strong reaction: he broke off the engagement within three days.
Ms. Eastman said she had told him early on in their relationship that she had over $100,000 of debt. But, she said, even she didn't know what the true balance was; like a car buyer who focuses on only the monthly payment, she wrote 12 checks a year for about $1,100 each, the minimum possible. She didn't focus on the bottom line, she said, because it was so profoundly depressing.
But as the couple got closer to their wedding day, she took out all the paperwork and it became clear that her total debt was actually about $170,000. "He accused me of lying," said Ms. Eastman, 31, a San Francisco X-ray technician and part-time photographer who had run up much of the balance studying for a bachelor's degree in photography. "But if I was lying, I was lying to myself, not to him. I didn't really want to know the full amount."
At a time when even people with no graduate degrees, like Ms. Eastman, often end up six figures in the hole and people getting married for the second time have loads of debt from their earlier lives, it should come as no surprise that debt can bust up engagements. Even when couples disclose their debt in detail, it poses a series of challenges.
When, exactly, are you supposed to reveal a debt of this size during the courtship? Earlier than you'd disclose, say, a chronic illness?
Even if disclosure doesn't render you unmarriageable, tricky questions linger. If one person brings a huge debt to a relationship, who is ultimately responsible for making good on the obligation? And if it's $170,000, isn't the more solvent partner going to resent that debt over time no matter how early the disclosure comes? After all, it will profoundly affect every financial decision, from buying a home to how many children to have.
These were the questions that weighed on Kerrie Tidwell. A third-year student at the Medical College of Georgia and an aspiring emergency room doctor, she doesn't worry so much about her ability to pay back her loans.
Ms. Tidwell, 26, is involved in a serious relationship with Stefan Kogler, an architect who is a native of Austria and living in Vienna. To Europeans, who often pay little or nothing toward their university studies, the idea of going deeply into debt to get educated is, well, foreign.
Ms. Tidwell feels no guilt about the $250,000 in debt she will probably run up, including some from a master's degree program she completed in London, where she and Mr. Kogler met. "I didn't acquire it because I go out and shop a lot," she said. "It's because I'm doing something that I'll love for the rest of my life."
Still, if she and Mr. Kogler are going to move in together and get engaged, she wants their financial arrangements to be clear and fair. But how do you define fair when you're bringing a quarter of a million dollars in debt to a relationship?
Mr. Kogler, 30, said he's not so worried about it. "In the long run, it will equal out," he said. "In the short run, you have to support each other, and I will support her as much as I can."
His stoicism is admirable. It's all the more so, given that if he moves to the United States permanently, he'll probably lose the chance to run his family's business in Austria. Supporting Ms. Tidwell as she begins to pay back her loans also means he doesn't have the freedom to, say, make a career change that involves a big pay cut. "I know he has his own dreams, and they will require money," Ms. Tidwell said. "Will my debt take away from that?"
Lisa J. B. Peterson, a financial planner with Lantern Financial in Boston, specializes in counseling young couples and has heard this story before. About half the people she sees are both bringing significant debt to the relationship, and about a quarter of the others have one person who has a pile of student loans.
When I told her about Ms. Tidwell and Mr. Kogler, one of her first suggestions was for them to make sure that Mr. Kogler did not have to make all the compromises when they prepared a joint household budget. "They can make some kind of sacrifice so that a goal of his is achieved, too," she said.
Then there's the question of how to plan for the unknowns. "What would happen if I got hurt and couldn't practice or got sued for malpractice?" Ms. Tidwell asked.
While insurance (which is itself expensive, alas) can reduce this anxiety, it can't cover the desire to stay home with children. Ms. Tidwell is resolute about having children and working full time, but Sheila G. Riesel, a matrimonial lawyer and partner with Blank Rome in Manhattan, said Ms. Tidwell ought to consider potential extreme circumstances as well. "It could happen that she wants to be a stay-at-home spouse for a while. What if she has triplets?" Ms. Riesel asked. "All of this is worthy of discussion."
The problem is, most couples never get this far in the premarriage money talks. One advantage to prenuptial agreements is that they force the issue, even if it does turn the talks into a negotiation. "At least half the time, people are shocked at what the other person's attitude is," said Susan Reach Winters, a matrimonial lawyer with Budd Larner in Short Hills, N.J. "You ask how they'd handle it if someone wanted to stay home after having a baby, and at the same time they give completely different answers."
Legally, it is likely that any leftover debt that Ms. Tidwell brought to a marriage would remain hers alone after a divorce. But Ms. Reach Winters said that if she were representing someone like Ms. Tidwell's boyfriend in a divorce, she would argue that he deserved a sort of refund for everything he paid toward household expenses even if Ms. Tidwell were making the loan payments out of her salary alone. Whether a state's laws back up this argument may be beside the point; any lawyer can use it as a battering ram in settlement negotiations.
Ms. Riesel also said couples needed to be wary of states like New York, where an advanced degree acquired during the marriage, and the earning power it brings, are treated as assets to be divided.
While Ms. Tidwell seems resolute about cordoning off her debt and paying it off with money she alone earns, she and anyone like her probably ought to codify that intent in a legal agreement, even at the point they decide to move in with someone. And this only gets more complicated (and the agreements more crucial) in second marriages, where people may come to the relationship with assets, sole responsibility for a mortgage and a couple of college tuitions. Better to write it all down, no matter how clear the laws may be in your state.
In some ways, Mr. Kogler has it easy. There aren't a lot of unemployed doctors. So he and Ms. Tidwell should be able to pay back her loans (albeit over 20 or 30 years) as long as they live relatively modestly. He might feel differently if he were dating a lawyer with similar debt but less certain prospects, or an X-ray technician who would really like to be a photographer.
Still, all of this raises the question: At what point do you have a moral obligation to disclose your indebtedness during courtship? On the eighth date? When you get to third base? In your eHarmony online dating profile?
"It's a sliding scale," said Ms. Riesel, the Manhattan lawyer. "It depends on the person and the nature of the relationship." Ms. Winters, the Short Hills divorce lawyer, said it might depend on your definition of a serious relationship. "But I wouldn't wait until you were signing leases for apartments or picking out engagement rings."
Ms. Eastman in San Francisco says she knows that now. "What would I have done differently, besides bringing a copy of my credit report on the first date?" she said, with a rueful chuckle. "I would have been more responsible."
And while she hasn't dated anyone seriously enough in recent months to get to the point of disclosure, she says it's probably necessary by the eighth or 10th date. "I know that now," she said. "But it had never occurred to me that this is something that might end up being a deal-breaker."
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