Know when to fold ‘em if a relationship has collapsed

THE solution to a bad relationship is to leave and cut financial ties, writes Barefoot Investor.

If things are really bad, leave and start the process of a formal separation.

THE solution to a bad relationship is to leave and cut financial ties.

 

TOM ASKS: My girlfriend is stuck in financial hell. Her estranged husband, who lives upstairs, is a gambler and has lost it all, a couple of times. The house they live in is in held in trust by his parents. She has started her own business (cleaning) and is doing well. She has the income … until he steals it. Who does she go to? She has no assets, just cash hidden. She wants to run, but can’t. He has taken out loans in her name in the past. So how can she get a loan to buy a house?

BAREFOOT REPLIES: Intense! And a little bizarre. If things are as bad as you say they are, you should encourage her to leave and start the process of a formal separation. She should also immediately shut down any joint accounts she has with him. If there’s a silver lining it’s that she’s in a slightly better situation than some women, in that she’s earning a decent income that will hopefully tide her over (in a rental property) until her situation becomes clearer.

 

PUSHED TO THE LIMIT

RENAE ASKS: I am one of your Barefoot buddies. I write as I am greatly concerned about the proposed Budget changes to superannuation. I am 58 and I have four investment properties on which I have significant debt. A month or so ago I decided I would sell the properties, pay off the debt and put the profit into superannuation. I was hoping to get around $1.5 million into super (I currently have $300,000). After the Budget I am limited to a lifetime cap of $500,000. What makes me angry is that the Government has said that people can have up to $1.6 million in super when they start a pension phase, but the new rules will not allow me to reach the cap. This all seems grossly unfair to me. What can I do?

BAREFOOT REPLIES: Well, you can vote Labor! Their super policy will allow you to contribute $180k a year post-tax into super. But, other than cosying up to Bill, let’s see what you can do: Yes, you’re dead right — the changes to super in the Budget are aimed at limiting the amount of money that wealthy people can invest into super in the future. But on the bright side, you’ve got $1.8 million in investable assets. That’s a very first-world problem you’re suffering. On a practical level, so long as you haven’t made a post-tax contribution since 1 July 2007, you’ll be able to contribute $500,000. If you’re married, your hubby could do the same in his fund. You can also make a pre-tax contribution of $25k a year until you’re 75 without having to satisfy a work test. To be honest, though, super laws these days are about as reliable as a Donald Trump election promise. You get the feeling that, eventually, whoever ends up in charge will build a giant wall around super and tax the hell out of it.

FOREVER YOUNG

LINDSEY ASKS: My wife and I are both 53. I earn $110k but our living costs are consuming our income, leaving nothing for extras or contingencies. We have exhausted our savings and rung up $24.5k in credit card debt, with another $8.5k drawn against our home — which is worth $500k, with $403k owing. We have an investment townhouse in Brisbane worth $370k, with $322k owing. Our refinancing options are limited as our debts are equal to 85 per cent of our assets. The way my wife puts it, she does not want to “go back to living like we did in our 20s”. What are our options?

BAREFOOT REPLIES: Sounds like your wife is half the problem (and you’re the other half). She may say she doesn’t want to live like you did in your 20s, but you guys are behaving like it. You’re 10 years out from your retirement and you’re funding your lifestyle by credit cards? Seriously?! Yes, you can sell the townhouse, which will pay off your credit card debts, and maybe your line of credit (remember, though, you’ll pay capital gains tax). However, it’s a near certainty that you’ll end up right back where you are now unless the two of you get on the same page. And by that I mean convince your wife that there’s more long-term pleasure in being financially secure than there is mindlessly adding to the nation’s landfill.

MAGIC MILLIONS

DANNY ASKS: My wife and I are 40, with two primary school-aged kids. I seek your investment opinion: we are mortgage and debt-free, with $2 million in cash due to an inheritance. Our investment goals: long-term growth combined with cashflow return to earn $40k per annum. We are thinking 70 per cent in property and 30 per cent in shares. Our banker suggested UBS Callable Goals, which is linked to four Australian bank shares, maximum three-year, which pays an 8 per cent fixed coupon. What would you do?

BAREFOOT REPLIES: OK, here’s what I took out of your question: You’ve done well! The only thing that could hurt you now is if your friendly banker works out that you’ve got two million large burning a hole in your pocket. I had a glance at the “UBS Callable Goals” product he recommended you. My first thought was: “This is a pile of crap.” It looks like a bunch of very smart bankers have conjured up a confusing product so they can make a boatload of fees (up to 3.75 per cent up front, apparently). Yes, they’re headlining that you can get a potential return of 8 per cent (by writing options against bank shares), but the fine print shows that if there’s a “kick-in event” you could lose 65 per cent of your investment. But win, lose or draw, you still pay the bankers their fees. Dude. You have $2 million bucks, so quit playing these silly games. A 5 per cent dividend yield from a few old-fashioned, low-cost listed investment companies will generate you $100,000 a year. Peace.

 

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Know when to fold ‘em if a relationship has collapsed