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Tuesday, April 27, 2010

In Pursuit Of Child Support

In Pursuit Of Child SupportYour heart sinks down deep into your belly as you open your phone bill. With shame and dread you see not just the current charges, but a sterile red insert alerting you that your account is seriously past due. Again. Gently, the bill is placed on top of the others. Electric bill. Credit card statement. Mortgage note. Relief from this debt seems elusive as your sadness turns to anger when you realize that your ex has failed, once again, to pay even a dime in child support for the month. The pale excuses ring in your ears - “Times are tough”, “I bought her a video game last month” and “Next week, I promise”. None of that nonsense pays the bills nor puts food on the table. None of that eases the despair that you feel down to your soul.

According to the U. S. Census 2006 report, nearly 22 million children depend on timely child support payments to sustain them. This report further indicates that approximately 87% of custodial parents were owed delinquent payments from the non-custodial parent. Clearly there is a need for more efficient child support collection efforts. Because of this gap in services in 2009 Senate Bill 1859 entitled “Child Support Protection Act of 2009” was proposed and has a predicted implementation date of mid-2010. This bill seeks to allow federal funds to match state funds in pursuit of past due child support payments. While this is a step in the right direction as far as protecting the financial interest of dependent children, much more needs to be done. And, there is much that the custodial parent can do to move their case forward.

Sometimes it seems that the easiest piece of business is the actual child support order. All parties work together to come to some sort of mutually beneficial agreement, given the guidelines of each individual state. Most states work with a child support guideline worksheet which translates to a support order of about 20% of the non-custodial parent’s income. Further, orders concerning the coverage of day care expenses, health insurance cost and extra-curricular activities may also be drafted. Many a parent has walked out of a courtroom clutching these agreements smiling as they think that the worst was over. Actually, the real work starts at that very moment. According to the US Department of Health and Human Services 27% of non-custodial fathers and 47% of non-custodial mothers completely default on their support payments and offer zero monetary contribution.

A savvy custodial parent will work immediately post-order to do what they can to ensure that they receive all monies owed to them in the near and distant future. This could be as simple as keeping notes concerning their ex’s employer, their work schedule, and the bosses name. This type of basic information will prove to be very helpful in the months ahead should the payment of support become increasingly erratic. Now is a time to start a file with all of your paperwork, including a log of all support related conversations with your ex, state child support hotlines and your attorney.

Speaking of your attorney, the question you may be asking is this: “Why not just let my attorney handle all of this?”. This simple answer is that it is cost prohibitive to nearly all custodial parents. Per www.lawyers.com the average national billing rate for an attorney is $284 per hour. This means that your 15 minute phone call just cost you over $70.00. Since nearly a quarter of custodial parents fall at or below the poverty line, a private attorney is just not feasible.

The first key to this process is to adjust your thinking about child support. This money is not a gift to you, is not optional and is not contingent on how often the non-custodial parent sees the child. This money is not a luxury, is not something to be bartered and is not a donation. It is money to support a child that two people created. It is a legal debt and a real obligation. Whatever happens outside of the support is secondary. You get along? Great! Hate each other? Doesn’t matter. Pondering getting back together? Of no consequence. The money is the money, plain and simple. This is a gender neutral issue as well, as 16% of all custodial parents are fathers and that number is anticipated to rise in the coming years

Another mistake that people make is believing that if the ex pays for additional items (e.g., a birthday party, new shoes, school supplies) then it relieves the non-custodial parent of all or part of their fiscal responsibility. New shoes are great, but that won’t pay the electric bill. This type of off-set system will only work if all parties agree to the terms in advance and preferably it is all in writing. It is one thing to come to agreement that you will reduce support by 25% if the ex pays for summer camp and it is quite another for a non-custodial parent to refuse to pay support in November because they bought a new backpack in August.

Yet another error that folks make is believing that in order to qualify for state child support enforcement services they must receive state benefits. While it is true that nearly a third of all child support cases involve a custodial parent who receives public assistance, most do not. All states have a department that deals with child support enforcement (“CSE”) and nearly all of these agencies charge no fee for their services. In 2004 over 4 million custodial parents turned to their local CSE for some sort of assistance with their case. Starting with the CSE of your state very early will prove to be helpful. As always, keep track of who you speak with, what you discussed, what follow up is necessary and what sort of timeline you are expecting. It is very helpful to also get an email address and fax number for your local CSE office, should you need to quickly get information to them.

Getting financial assistance for your dependent children is your duty and the non-custodial parent’s responsibility. Think of it in terms of an actual job and decide each week what you will do to get the money your children deserve. One week you may make a phone call to the local CSE office to get an update on your case. Another week you may try to verify where your ex is employed. Yet another week you may want to write to your local congressman to show support for any pending child support enforcement legislation.

If you feel that dealing directly with your ex on these matters is hazardous, then don’t. These things can quickly get escalated and virtually never result in a payment towards past due support. You will walk away angry, frustrated and empty handed. Needless to say, never let these matters trickle down to your children and make them aware of any animosity between the two of you.

Being a parent means many things. It means helping with homework and feeding them healthy foods and kissing their scrapes. You will also cry with your children and laugh at their silliness and dream with them. Part of your responsibility as a parent is also to ensure their continued financial security in order to create a peaceful living space where they can thrive. Do it for them.

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Friday, April 16, 2010

Life Insurance: Do You Really Know What You Need? Term vs. Whole

Life Insurance: Do You Really Know What You Need? Term vs. WholeSome people are plain grumpy. Teaching a night course on Personal Finance at a local college painted my memory full of stupidity from one specific student. My other students were great and as a class we learned a great deal. Even Ms. Grumpy would eventually come around.

It just so happened I was much younger than Ms. Grumpy and this was my first adult teaching experience. I kept my cool and told the class from day one, "We all have something to learn, and if you can save yourself money from this, I have done my job." The big break came in about week 5, when we were on the topic of life insurance. I started class off with a short little introductory lecture on Term Life Insurance vs. Whole Life Insurance.

Each time in your life requires different life insurance strategies; and knowing these strategies will save you money on the policy you purchase.

  1. Term and Whole Life Insurance both cover expenses in case of death.

  2. Whole Life Insurance costs more because it is also a way for you to invest your money.

  3. Term Life Insurance is for a set period of years and with the lower premiums, you can invest your money your way.

Whole life insurance makes insurance companies money, that is why many insurance salesman push Whole Life Insurance. Term life insurance is cheaper and does provide for your dependents in the case of your death.

There were a lot of glossed over faces looking at me, when Ms. Grumpy said,"I have a lot of money, I am divorced, my kids are out of the house, I have Whole Life Insurance, and I know how to invest myself." "So I should get Term Life Insurance." I replied, "If you weigh the price and length of the polices and if you have enough discipline to invest the remaining money, then, yes."

I could tell she was mad, but luckily this time it wasn't at me, but her Insurance company who had been selling here Whole Life Insurance for the last 4 years, when she could have the same protection under a Term Life Insurance Policy. It was a great moment, Ms. Grumpy in her own way had learned something from the new teacher.

Saving money in our budgets adds up in many different ways. Depending on you life situation, re-evaluating your Life Insurance needs could be one way to free up some extra cash for investing or paying down debt, while still giving you the protection for yourself or your family.

I wish the story of Ms. Grumpy would have a happy financial ending, but when we got to the investing unit, finding out she had all her eggs in Corporate Bonds because they paid a 8% interest rate, would not let that happen. She said here is where all my money is and it is safe. That will be for our next story. Life Insurance is a necessary evil. Finding the right coverage can save you money and allow you to invest the way you see fit. Keep in mind, Insurance Companies make a lot of money, but as a consumer you decide how much of yours they will get.

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Sunday, April 04, 2010

Student Loan Reform Rides On The Back of Healthcare Reform

No doubt, healthcare reform is a huge deal. Mr. Obama has succeeded where other great presidents failed, and he should be commended for getting healthcare reform passed. I, for one, am pleased about reform, as I've been without health insurance for almost 2 years now.

But healthcare reform wasn't the only "big deal" change enacted. Alongside -- or perhaps on the back of -- healthcare reform was passage of the Education Reconciliation Act, which essentially cuts banks out of the federal student loan picture. This change will remove predatory lending from the student loan industry, and will concurrently save taxpayers many billions of dollars.

When I was in trouble with my student loans, I consolidated with the government-run William D Ford consolidation program. They treated me very fairly. After a year of steady payments they removed all negative marks from my credit profile, and I was able to opt for an income contingent payment plan, which made my monthly payments affordable.

A great feature of the Education Reconciliation Act is student borrowers will be able to opt for something similar: an Income Based Repayment program.

Another huge benefit: loan forgiveness. Those who opt for the Income Based Repayment program will have their loan balance forgiven after twenty years. For nurses, teachers and military folk, forgiveness happens after just ten years.

Here's a clip from the White House blog:

"...Today, the President signed the Health Care and Education Reconciliation Act, which will end wasteful government subsidies to private student lenders and invest the savings in making college more affordable. Over the last few months, the Middle Class Task Force has traveled the country extolling the benefits of this policy, which is a cornerstone of the President’s domestic agenda.

Right now, the government spends billions of dollars a year subsidizing financial institutions that make guaranteed federal student loans. According to the Congressional Budget Office, the legislation signed by the President today will generate nearly $68 billion in savings over the next 11 years by finally putting an end to these subsidies.

We are pleased to report that part of the savings will be used to expand the Income Based Repayment program for federal student loans. This expansion was one of the key Middle Class Task Force policy recommendations in the FY 11 Budget and the President signed it into law just two months after we first proposed it. Borrowers who choose the Income Based Repayment program will have their monthly payments capped at 10 percent of the income they have left over after covering basic needs, and any remaining debt will be forgiven after 20 years. Public service workers – like teachers, nurses and members of our armed forces – will have their remaining debt forgiven after 10 years.

These changes will not be implemented immediately, but they still represent as major step forward for borrowers with unmanageable debt burdens. In the meantime, borrowers will continue to benefit from the existing structure of the Income Based Repayment program, which was launched last summer. You can learn more about the program here.

This expansion is just one of several critical investments provided for in the Health Care and Education Reconciliation Act. We will also invest more than $40 billion to ensure that all eligible students receive Pell Grants and that these awards keep up with college costs. The legislation provides new funding for community colleges to develop online courses, build partnerships with local employers, and take other steps to help students get the skills and credentials they need to succeed. And the legislation provides additional support to Historically Black Colleges and Universities and Minority Serving Institutions.

We will make all these investments while actually reducing the deficit. It’s a win for taxpayers and it is another important victory for America’s middle class families..."

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