Illustration:Chris Gash for Newsweek
Committing to Separation: Divorce decrees increasingly include ‘disaster scenarios'

By Linda Stern
Aug. 4, 2008 issue

It’s been more than a year since Janette Chamberlin and her husband decided to divorce. To save money on lawyers, they’ve been negotiating their own settlement and are ready to draw up the papers and finalize the deal. She even has a new boyfriend. The catch? The Chamberlins still live together in their house outside Philadelphia. The couple just sold their home, and, as a result, neither has been able to afford to move out.

The economy is taking a toll on marriages, but it is tough on divorces, too. Couples can’t unload their houses for enough cash to pay off their mortgages and home-equity debts, but job losses and tougher mortgage standards make it harder to afford splitting them, too. “I’m seeing many people who lose jobs and just don’t have the money to pay their alimony and child support,” says Jill Brooke of the online community First Wives World (firstwivesworld.com). Here’s how troubled couples can extricate themselves during troubled times.

• Deal with the house. Couples can hang on to a house until the real-estate market improves, but it’s usually not a good idea, says Stacy Francis, a New York financial planner who deals with divorce issues. “You’re binding two people together financially who don’t want to be bound in any way,” and if one stops paying on the mortgage, it can cause housing and credit problems for the other. It’s better to transfer the house to one spouse, if that spouse can qualify for a mortgage on his or her own.

Couples who can’t afford to do that and find themselves “upside down”—owing more on the home than they can sell it for—are negotiating short sales, in which the bank agrees to cut the loan amount to the sale price the couple gets. Richard Zaretsky, a West Palm Beach, Fla., lawyer, says he is negotiating two or three short sales a week for divorcing couples.

Illustration: Chris Gash for Newsweek 

Last week’s banking news—the federal government stepped in to shore up mortgage-buying giants Freddie Mac and Fannie Mae and to take over the bad-loan dependent IndyMac Bank—left many consumers in a panic. But some experts see the intervention as an opportunity for folks to get their finances in order. “This is all good news for consumers,” says Kathleen Day of the Center for Responsible Lending, a Washington policy group. Here’s what the events mean for you.

• Mortgage shoppers: Last week’s actions may ease the supply of mortgage money, but qualifying for those loans remains a challenge. “The traffic has picked up, but only about half the people coming in are qualifying for a loan and having enough money to do the transaction,” says Marc Savitt, a mortgage broker from Martinsburg, W.Va., and president of the mortgage brokers’ trade group. At issue are higher fees and borrowing standards for anyone with credit scores below 680, a level that used to be high enough during the loan-pushing bubble. You’ll need to prove your salary and have enough cash in the bank to make a down payment as high as 20 percent. Start by checking your credit score at myfico.com, and do what you can to raise your score over 700 so you can get lower rates. Paying down some balances in a hurry or even raising your borrowing limits can sometimes bump up your score. Then cast a wide net for a lender that will give you the deal you like. “There are huge disparities on pricing from one side of town to the other,” reports Keith Gumbinger of research firm HSH Associates. “You can find pricing down in the 6 [percent range] and others up in the 8’s in the same city.” Check rates with a couple of local brokers, a national mortgage bank and at online sites like hsh.com. But don’t wait too long; interest rates are likely to rise.

Wall Street’s tumbling stock prices are falling particularly hard on one group of people: folks who were just about to collect their gold watches (or buyouts) and step into retirement. A bear market during the first five years of your retirement can doom the chances of your money lasting until you no longer need it, according to new research from T. Rowe Price. The firm is counselling investors not to retire if that means they have to start drawing down their investments and taking Social Security while the bear continues to grumble.

Every extra year of work and 401(k)-feeding can increase retirement income by 7 percent, according to new research from the firm. Even workers who stay at the job but stop putting away money will increase their retirement income by 4 percent a year. Furthermore, Social Security benefits get roughly 8 percent fatter for every year that you delay starting them. Combining all three: working longer, keeping up those retirement contributions and delaying Social Security can boost the purchasing power of a 62-year-old by as much as 30 percent.

By Paul Tolme 

Growing concern about climate change has fueled a boom in sales of carbon offsets, which allow consumers to support clean-energy or reforestation projects that, at least in theory, remove as many greenhouse gases from the atmosphere as the donor contributes. While some cheer this growing market, others question whether consumers get what they pay for. Carbon offsets are unregulated in the United States. “The majority of offset retailers have good intentions, but it’s still a market where you have to do your homework,” says Katherine Hamilton of Ecosystem Marketplace.

Smart shoppers should look for offsets certified and audited by third-party organizations. These include the Gold Standard; Environmental Resources Trust; the Voluntary Carbon Standard, and the Climate, Community and Biodiversity Alliance. Buyers should also consult carbon-offset buyers’ guides published by the Tufts Climate Initiative (tufts.edu/ tie/tci/), Clean Air–Cool Planet (cleanair-coolplanet.org) and the Environmental Defense Fund (edf.org).

Illustration: Chris Gash for Newsweek 

By Ashley R. Harris

Like so many women, Michelle La Rocca knew from childhood exactly what she wanted her wedding to look and feel like: Cinderella at the ball. But when the big day rolled around last summer, she was hit with a dose of reality. La Rocca’s Prince Charming didn’t have a king’s ransom in the bank, and she didn’t have a fairy godmother with a platinum AmEx. Clearly, paying for her dream wedding was going to require some creativity.

Taking inspiration from Cinderella’s mouse friends who fashioned a ball gown out of scraps, La Rocca began scurrying around for ways to fulfill her dream on the cheap. She sent out handwritten invitations instead of engraved ones. She scavenged the reception hall for leftover vases and candles to make table centerpieces. She and her fiancé bought candy in bulk to hand out as parting gifts and wrapped them with ribbon and a card. And even though she swore she would never skimp on her gown, La Rocca ultimately bought hers at— gasp!—a discount bridal store.

La Rocca is hardly the only budget bride. With the economy in the tank and the cost of the average wedding now a budget-busting $28,000, “people are doing more research and paying more attention to the details,” says Rebecca Dolgin, executive editor of The Knot (theknot.com), a wedding Web site. “The trend has moved away from everything-has-to-be-over-the-top, ” says Alicia Rockmore, CEO of lifestyle consultancy Buttoned Up (getbuttonedup.com), who says more and more couples are saving their money for the things that come after the big day, like houses and children. “The happiest day of your life should not be your wedding,” she says.

Want to take cash out of your house but afraid to borrow? A new crop of no-payment home-equity products is coming to market. The catch: you trade away a piece of your home’s future appreciation for cash now. Unlike traditional reverse mortgages, they are not structured like loans, the fees are lower and there’s usually not an age restriction. With a Rex Agreement (rex agreement.com), you can get $71,000 on a $500,000 home if you agree to split future changes in value 50-50 with Rex & Co. You have to stay in your home for at least five years. (If you want out sooner, penalties run as high as 25 cent of the original sum you received). If the value of your home goes up to $600,000, you’ll owe Rex $121,000 when you sell. That’s the original $71,000 plus $50,000 for half the appreciation. If the value falls to $400,000, you’ll pay $21,000; that’s the original amount minus half the depreciation. Other similar new products are EquityKey (equitykey.com) and My Equity Freedom (granderfinancial.com). Closing costs run as high as $4,000, so look before you leap.

Baerbel Schmidt/Getty Images
Fill ’er Up: This summer, many families are choosing smaller cars over gas guzzlers or driving shorter distances

May 26, 2008 issue
By Linda Stern

Amy and Adam Geurden of Hollandtown, Wis., had planned a long summer of short, fun getaways with their kids, Eric, 6, Holly, 3, and Jake, 2. In the works were water-park visits, roller-coaster rides, hiking adventures and a whirlwind weekend in Chicago. Then Amy did the math: their Chevy Suburban gets 17 miles to the gallon and, with gas prices topping $4, the family would have spent about $320 on fill-ups alone. They’ve since scrapped their plans in favor of a “staycation” around the backyard swimming pool. “I’m really disappointed,” she says.

So is almost everyone else. Nearly 60 percent of Americans are cutting back their vacation plans because of gas prices, according to a survey by Discover Financial Services. Here’s how to squeeze in a little bit of travel fun without breaking the bank.

Those plummeting house prices may hold a bit of good news for homeowners who want to cut their property taxes: homes that were assessed during the height of the housing bubble may now qualify for reassessment at a lower level. Typically, property taxes are calculated by multiplying a tax rate against the property’s assessed value. Every local county or district has its own appeal procedures and deadlines, so check your local government’s Web site for the specifics. But the basic order of events is this: check your latest assessment to make sure it accurately lists the dimensions and details of your home. Then find out what your neighbors are paying. Municipalities publish these records; find them at publicrecords.netronline.com, on your local government’s Web site, or by going into the tax assessor’s office and asking to see the records. Review what’s happened to prices in your neighborhood since you were assessed at zillow.com or with a local real-estate agent. If there have been significant declines, you can appeal the assessment the next time you get a tax bill or assessment notice. And now for the not-so-good news: state budget crunches are causing many municipalities to consider raising their property-tax rates, even as they are forced to lower assessments. So even if you get a downward reassessment, you could end up with a bigger tax bill anyway.

Illustration: Mark Matcho for Newsweek

Working part time can be good for your life and your checking account. But you need to know how to do it.

Louise Richardson of Parker, Colo., likes to work. But with four teenagers in her house and a firefighter for a husband, she prefers to do it part time. Through a placement service called 10 til 2, she landed a 15-hour-a-week job as an event planner. “It’s given us more financial freedom. My kids don’t see me as the person who cooks and cleans all day. But they also see that my family is my priority,” she says. “It allows you to have that balance between work and family.”

More than 25 million Americans—twice as many women as men—work part time. They’re moms, dads, retirees and people who are sick of the rat race. Employers are making it easier to work fewer hours: 36 percent now give employees the chance to work part time, according to a survey of 90 employers released last week by Hewitt Associates, a human-resources consulting company. The survey also found that 31 percent of employers now offer flextime, 46 percent permit job sharing and 39 percent allow telecommuting. TIP SHEET gives some tips on how to work part time successfully:

A few good fixed-rate offers remain. There’s a 6.5 percent fixed-rate card from Pulaski Bank (pulaskibank.org) and a 7.25 percent card from Simmons First National Bank (simmonsfirst.com). Capital One (capitalone.com) offers a 7.9 percent fixed rate on its “prestige” card for borrowers with the best credit scores. Before signing up, check the contract to see how long the rate is guaranteed, since most issuers reserve the right to change the rate as they see fit.

Why does it matter what the stock market is doing at the time that someone retires?
The greatest risk to a retirement plan is a significant market decline in the early years. This can diminish a portfolio so severely that even when the good returns finally arrive, there just isn’t enough left to fund the remainder of retirement. An individual with a $500,000 portfolio who experiences a 15 percent market decline in a year, and also withdraws 7 percent of the portfolio, may deplete the portfolio to $390,000 at the end of the first year. This requires a whopping 28 percent return just to break even again at the end of the second year.

What advice do you have for someone who retired on Jan. 1 and saw his nest egg shrink?
The decline since Jan. 1 should not have derailed a welldesigned retirement plan. Delaying major expenditures, like car purchases or home renovations, can help get an aggressive plan back on track.

Undergraduates should check lenders like Discover (discoverstudentloans.com) and JPMorgan Chase (chase studentloans.com) that are trying to build their student-loan businesses and may offer better deals. Ask your school’s financial-aid office to recommend a lender. Then compare that offer with what you can find at sites like MyRichUncle .com and SimpleTuition.com.

findabetterbank.com: Put in your ZIP code and your bank preferences, and this site will point you to the best institution for your needs.

ins.com: Put all your policies up for review once a year. Compare what you’re paying for your car, home and life insurance with what’s available elsewhere.

Every tax season has its own set of blunders—mistakes that can cost you real money. Here’s what to avoid this year.

Not filing. If you made $3,000 last year but didn’t earn so much that you’re required to file a return, file one anyway. It’s the only way you’ll get your stimulus check.

Spending too much to get an extra-fast refund. Many preparers offer instant or one-day refunds. But the refunds are really expensive loans guaranteed by your refund. They can carry fees that can add up to a hefty sum. Just authorize the IRS to deposit your refund directly into your bank account.

Not checking for extra write-offs. Tax year 2007 carries some special credits and deductions that are easy to miss. Teachers who buy supplies, homeowners who save energy, folks who lost property in hurricanes and tornadoes, those who have kids in college or anyone who’s gotten relief from their mortgage banker should all make sure they are getting what they are due.