51-year-old divorced man, income drop, difficulties looming

C

crunched

Registered User
Messages
14
Age:
51

Spouse’s/Partner's age:
Divorced

Annual gross income from employment or profession:
E72,000

Annual gross income spouse:
n/a

Type of employment:
Private sector

Expenditure pattern:
In the current climate frugal, and a borrower. Before downturn, just frugal.

Rough estimate of value of apartment
Currently, around E315,000

Mortgage on apartment
E215,000 – have been paying for 19 months. No payments missed. E1,470 per month. Borrowed 54pc of original value. Used inheritance for deposit.

Mortgage provider:
First Active

Type of mortgage: Tracker, interest only, fixed rate
Fixed.


Interest rate
5.5pc 3.5 years to go on fixed.

Other borrowings – car loans/personal loans etc
E11,000 credit union. 4.5 years to go. Paying back at E250 pm. Will need to borrow about E12,000 more to pay unforseen educational expenses (see other outgoings).

Do you pay off your full credit card balance each month?
No

Savings and investments:
E4,500 in credit union. Keeping it there as loan collateral.

Do you have a pension scheme?
Yes. E470 per month into company defined benefit scheme (I expect changes here soon as employer has hinted a move defined contribution soon).

Do you own any investment or other property?
No

Ages of children:
14, 16, 18

Life insurance:
Yes.


Other outgoings:
Maintenance – E1,200 per month. Drops 33pc in 3.5 years as eldest reaches 21. Drops again in 4 and 6 years time.
Am paying extra E4,000 pa unexpected educational fees for middle child for next three years.
Electricity, gas, car insurance, car repairs, holiday and Christmas money, monthly bus ticket, broadband, TV, birthday present money etc deducted from pay at source via company-related credit union. About 700 per month goes here.



What specific question does you have or what issues are of concern to you?

At the start of 2008 I could pay all above (loans, bills etc) and still have about E1,200 per month to live on for the month (would pay pocket money and various children's smallish expenses from this also), although things were quite tight. Now, July 09 that has been reduced to around E650 per month due to pay cut, loss of extra paid work, two tax levies, work expenses cut, PRSI increase and mortgage TRS reduction.
My ex-wife, though her finances are separate to mine since divorce, has also seen her income drop drastically, placing further unforeseen pressure on me.
Although I have not gone into arrears yet, I expect this will start to happen soon.
At this stage nothing less than a move to an interest free mortgage for four years (when my outgoings should start to drop – see above) will help me. Although my apartment is not the family home as such, I paid more to remain close to my children, who are in walking distance and visit regularly to stay night and for meals etc.
I have heard that MABs will represent borrowers in talks with lending institutions. Is it worth approaching them?
 
Depending on how much your ex-wife earns, there could be an advantage to you in opting for separate assessment so that she could transfer some of her tax credits to you. This is allowed if maintenance is being paid.
 
I'm trying to tread carefully here. The additional 4k pa for the next 3 years seems to be the cost that is tipping you into the red. If this is for private school fees, you can't afford it. I don't know from your post what obligations for support your divorce legalities include. Maybe this is one, but doubtful if it is 'unexpected'. Children can be moved to public schools, without too much upset, particularly if this can be managed before the start of the next school year. Will the same obligations be required for your third child?

I may be completely wrong and this could be for more specialised education needs - are you comfortable giving more information?
 
Thanks Imipwis, you are fairly close there. There's only one, very good, public school in our locality where this child went for first year. Unfortunately didn't settle in (wider factors here) and was politely 'asked to leave' after one year, so it was an unforseen 'spanner in the works'. Current school has been very patient despite some trying episodes. At 16, no school is obliged to take on a student, especially one with a troublesome past and I fear this child would simply drop out if moved. I think I'm going to have to pay this money for the next 3 years. Other children are in free schooling. As recently as November 2008 my credit union said they would be comfortable 'stretching' my loan to an eight-year term, which would have seen me through. By January they had been told by financial regulator that five years was the maximum term I could take.
 
Thanks Circle. My ex wife wasn't earning much in the 'good times' and I gather she is earning next-to-nothing now. I'm not sure if I'm on the right wavelength here, but I pay tax at the higher level on the maintenance at source. I did suggest to her some years ago that I claim tax relief on the 'gross' amount, transfer it to her so she could declare it as income and pay tax at the lower rate. Does that make sense to you? For some reason she took great exception to this and wouldn't hear of it.
 
Are you correctly claiming tax relief for the maintenance payments? It wasn't entirely clear from your post.

See [broken link removed] [Revenue Commissioners website] for information about the relief for maintenance.
 
Thanks Mr Duck. I am not claiming tax relief. I understand that if i claim tax relief, she will then have to declare it as income and pay tax on it, though perhaps at the lower rate. She has resisted this, as outlined above.
 
I think both you and your ex-wife need to check the details of the implications of being allowed to deduct/ being taxed on the maintenance payments.

As I understand it, you and she will both be able to claim a One Parent Family Tax Credit (so long as each of you have the children stay with you at least 1 night per year). This is worth €1830 pa- see 6th row of table here. Additionally, you will have credits for PAYE (if employed)/ single person. Your wife's income - which primarily would appear to consist of the maintenance payments and occasional subsidiary earnings- may qualify her for exemption from tax (not taxable if she earns less than less than €20000 in 2009)- scroll down a little below the table here.

The basic point is that you'd be able to reduce your tax bill and your wife MAY not be taxed (in effect) on the maintenance- she might possibly be taxed but then would be able to recover the tax using tax credits and/or exemption limits.

I would advise checking this out with the Revenue Commisioners/ your accountant/ solicitor or have a further trawl through the AAM site.
 
Sorry to hear of your situation it is tough. You say you don't clear your credit card each month but don't give the balance. Could you try to apply for a credit card with interest free balance transfer for 6 months or so period.
Also look at going interest only on your mortgage.
I know everyone wants there children to finish school but would it be a case that your middle child would be more suited at leaving and pursuing something else, a course or apprenticeship that doesn't require LC. This may be more beneficial to them in the long run especially if they are not academic.
 
niceoneted said:
I know everyone wants there children to finish school but would it be a case that your middle child would be more suited at leaving and pursuing something else, a course or apprenticeship that doesn't require LC. This may be more beneficial to them in the long run especially if they are not academic.
Click to expand...

Just focussing on your child's education for a moment. Every parent wants to give their child the absolute best and education is critical. As a parent myself, I would do everything in my power to get them through the full educational system.

Can I ask a question: IF you could get your middle child into the non-fee paying school again (or maybe consider another one within reach), with appropriate supports, would you and your wife and child agree to it?
 
crunched said:
Thanks Circle. My ex wife wasn't earning much in the 'good times' and I gather she is earning next-to-nothing now. I'm not sure if I'm on the right wavelength here, but I pay tax at the higher level on the maintenance at source. I did suggest to her some years ago that I claim tax relief on the 'gross' amount, transfer it to her so she could declare it as income and pay tax at the lower rate. Does that make sense to you? For some reason she took great exception to this and wouldn't hear of it.
Click to expand...

Just to flesh this out a little, on the tax treatment of yourself and your ex-wife, you have a choice between separate assessment (where you could use her allowances to reduce your tax) and assessment as single individuals. If you are assessed as single individuals, then you can make maintenace payments to support your ex-wife before tax (she is then taxable on this). Crucially, this does not apply to child maintenace.

You should do the sums yourself, but I suspect that separate assessment might be favourable for you (I'm reading from your posts that the bulk of your maintenance is to support your children rather than your ex-wife).

This revenue article explains things pretty clearly:
[broken link removed]

Best of luck,
Circle
 
thanks circle 'If you are assessed as single individuals, then you can make maintenace payments to support your ex-wife before tax (she is then taxable on this). Crucially, this does not apply to child maintenace.' The payments are for child support, not for her as she got the house. We are already taxed as single individuals, so I suppose that rules that out.
 
.... but, a thought occurs. Although it's child maintenance, and income tax must be paid on it by someone, could it be paid at her lower rate if she were to declare it as gross income and I were not to pay tax on it? I posed this once before to her, and she wouldn't accept it as the children were on medical cards and it would have pushed her income over the limit.
 
No, if it's child maintenance then it's not deductable.

Read the link I posted above, there may be a benefit to you choosing separate assessment in order to make the most of your ex-wifes tax credits/allowances.
 
Thanks circle and deadlyduck, I remember going down this road some years ago, and came to the same conclusion re tax and child support, so that remains a nonrunner. We are already are seperately assessed for tax and I am claiming all credits mentioned.
Impiwis, thanks for your help, but a return to the old school is off the cards - it would be unmanageable all around. Niceoneted: thanks for your interest. Changing credit card at this stage would be like shifting the Titanic's deckchairs. Whatever salary I have left monthly now goes straight into my credit card (about 1,200 in the red as i speak) and then comes out again, with more, in groceries, petrol etc.
In my original post I was wondering about going interest-free for three years. How receptive would a lender be to this in the current climate? My fear is that when I run into difficulties they could try to repossess on the basis that I have more or less 50pc equity in the apartment, so they could sell it on for literally half the price and get their loan back, leaving me with nothing. I have heard B Lenihan say that nobody's going to end up on the street, or words to that effect.What is one to make of that statement? And would it be wortwhile getting Mabs to represent me?
 
Talk to your lender, make appointment with loan advisor (or should I call them arrears advisors) they are not interested in repossession and you may be able to negotiate reduced payments, this will not be given up front for the full term you want but can be renegotiated again. At the least you will probably get interest only.
 
Hi crunched, this is just a suggestion from a different angle completlely and I have had to do it, rent a room out from monday to friday ? I know maybe hard but it helps, i know not long term but maybe you could think about it, best of luck
 
crunched said:
.... but, a thought occurs. Although it's child maintenance, and income tax must be paid on it by someone, could it be paid at her lower rate if she were to declare it as gross income and I were not to pay tax on it? I posed this once before to her, and she wouldn't accept it as the children were on medical cards and it would have pushed her income over the limit.
Click to expand...

If you move from a situation of paying maintenance for kids (not tax deductible) to paying maintenance to spouse for herself (which is) you will have a short term gain, but the long term consequences could more than outweigh the gain (i.e. it could help to bolster a claim by your spouse for continued maintenance to her after kids are gone)
 
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