To Her Credit, She Did Cut the Marriage Short

Q: I got married last February but later found out that my young husband, who doesn’t work, had $60,000 in credit card debts. I, on the other hand, have worked as a legal secretary for 36 hard years and last year finally managed to establish good credit. In horror at this news of hubby’s debt, I filed for an annulment in September. I need to know if the credit card companies can go after my hard-earned income. Second, he is thinking of filing for bankruptcy protection. I need to know if his filing for a bankruptcy will affect my credit standing.

A: Sometimes writing this column is like watching a soap opera. I am sorry that your romantic plans didn’t work out. But if you’re a regular reader, you know how important it is to discuss finances before you say “I do.” Usually you marry not just a person, but his debt and credit rating as well. And his debt may be around a lot longer than his looks.

Fortunately, you moved fast enough that you shouldn’t suffer permanent damage. If hubby incurred the debts before marriage and used only his own income to qualify for the credit cards, the creditors should restrict their collection efforts to him. “Should” doesn’t mean “will,” however, and you might have to suffer some nasty collection agency calls before you get them off your back. Reading attorney Robin Leonard’s book “Money Troubles” (Nolo Press, 1999) should help you in dealing with the jackals.

I’m assuming you didn’t apply for credit together during your short union. If you did, that would make you responsible for that joint debt.

Estate Tax Forms: Risky Business

Q: You recently wrote about the cost of filing estate tax forms being 1% to 2% of the value of the estate when you use a professional. My question is: Why doesn’t the individual file the forms himself? With today’s computer programs and the availability of help on the Internet, plus what the IRS offers free, I can’t imagine why any ordinary person with a modicum of intelligence would pay $15,000 to have this done. My husband and I took care of the estate forms when our parents died, all without problem. We also avoided probate by using quitclaims to pass huge amounts of land and a business from my parents’ estates before they died.

A: Actually, the 1% to 2% figure was the cost for settling a large estate, not just for preparing the final income and estate tax returns.

As to why you shouldn’t do it yourself: Some people do, especially if the estate is simple and no estate or gift taxes are involved.

But the fact you thought the process was easy, particularly with large estates, suggests that you might have missed a few things.

When your parents signed those quitclaims, for example, did they file gift-tax returns with the Internal Revenue Service? Those are required when anyone makes a gift worth more than $10,000 per recipient--and those “huge amounts of land and a business” would certainly qualify.

Was the amount of those gifts then subtracted from your parents’ lifetime estate tax exemption? If the value of the gifts and the residual estate was more than the exemption at the time of your parents’ death, was the proper estate tax paid to the IRS?

And how did you value the land and the business? Did you hire an independent appraiser? Are you comfortable that the appraiser’s valuation will stand up under scrutiny? Family businesses tend to be tricky to appraise, and the IRS is aware that there is a strong incentive to undervalue them--which gives the IRS a strong incentive to audit.

Then again, could it be that you and your parents ignored the law, didn’t file the proper returns and failed to pay the tax due, and that the IRS didn’t catch it? It’s certainly possible to fly under the IRS’ radar, particularly now that the agency is spending much of its time rehabilitating its image rather than cracking down on scofflaws.

But as executors of the estate, you can be held personally liable for any taxes that should have been paid but weren’t. That should be incentive enough to do it right--and to have a professional at least review your work before shipping it off to the IRS.

Your family also gave up some valuable tax breaks by transferring the assets before your parents’ deaths rather than after. Instead of getting a new basis for tax purposes when your parents died--which would have “stepped up” the value of the property to the then-current fair market value--whoever got the land and businesses also got your parents’ much lower basis.

If you don’t understand how this works, read any tax or estate planning book. You’ll be kicking yourself for blowing it.

As for relying on free IRS advice, bless your heart. Although its Web site is great and its telephone help line is getting better, I’m not sure I would rely on the IRS to help me through a 1040EZ, let alone an estate tax form.

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Liz Pulliam Weston now writes a second “Money Talk” column on most Fridays. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at http://161.35.110.226/moneytalk.