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How far into debt would you allow your DP to go?

post #1 of 25
Thread Starter 

I used to post on MDC a lot, but then life got really busy and I haven't been able to participate as much. 

 

So DH runs a business. He's trying to take it in a new direction, which he enjoys much more than the old one. However, the business has since lost profitability and is in significant debt (credit card debt) and operating at a loss. He's tried to get some friends with money to give him low interest loans to pay off the credit cards, but has had limited success with this. 

 

He is certain that the business will turn around soon and he'll be able to pay off the debts, but he tends to overestimate his earning potential. And he's been predicting a turn around for over a year, yet it hasn't materialized. He tends to underestimate and ignore problems, so because he's happy, the debts don't bother him that much. When one credit card gets maxed, he gets a new one. Every once in a while the cash flow increases, which he takes as evidence of the 'turn around' but the overall picture is that the net worth of the business is declining significantly and the debts are increasing. 

 

I've asked him to try to get a small business loan that's lower interest and more separate from the family's finances, reconsider the direction of the business, get business counseling, and he's refused all that as unnecessary (he has a business degree so he says he has the education to figure this out). 

 

Right now the debt is between 30K and 35K, and increasing by about several hundred per month (based on my information, I don't have access to everything). Most is on credit cards, some is to a friend, some is to the IRS (I just found out about that one; I'm still in shock but moving quickly towards terror.)

 

As I think through what to do, I'd really appreciate other perspectives about what others would do in this situation. If there's a point at which you'd issue an ultimatum, or separate finances? 

post #2 of 25

I worked business lending for years as an underwriter, analyst and a lender.  A couple of thoughts -

 

Your husband's attitude is typical of many work-for-myself people.  No one (in the general sense) wants to pay attention to the unpleasant stuff like cash flow, taxes, etc.  

 

The chances of him getting a regular commercial loan are slim to none if he hasn't been able to show at least breakeven over the past few years.

 

An SBA loan will try him (and you) up personally far than credit card debt.  The SBA will attached to any asset you jointly own.  They will take 3rd, 4th, or higher position on mortgages, require assignment of any life insurance, secure CDs or stock, etc. 

 

Any IRS issues are a cause for great concern.  The IRS goes from mailing notices to seizing bank accounts in the blink of an eye.  I have seen this happen on several occasions.  Do you know why there is problem with the IRS? 

 

I think you are at the point of an ultimatum.  What is his line of work?  Could he get a full-time job and do his business on the side?  If so, maybe you could frame it as get a full-time job, pay of the debt and then revisit the self-employment idea.

post #3 of 25

I agree with caneel. The IRS is a huge red flag.  you need to figure out what the deal is with the irs and clear that first and foremost before taking on any more debt, or considering any more debt.

Does DH have an accountant, an atty, a business planner?  Those might be good people to get involved at this point.

 

** our library frequently runs sba seminars

post #4 of 25
Quote:
Originally Posted by Wild Lupine View Post

 

Right now the debt is between 30K and 35K, and increasing by about several hundred per month (based on my information, I don't have access to everything). 

 

 

 Why don't you have access to everything?  That's a red flag right there, I think.  Sit down with him and figure out just how in debt he really is.  He may not even know.  

post #5 of 25
Thread Starter 
Quote:
Originally Posted by Caneel View Post

I worked business lending for years as an underwriter, analyst and a lender.  A couple of thoughts -

 

Your husband's attitude is typical of many work-for-myself people.  No one (in the general sense) wants to pay attention to the unpleasant stuff like cash flow, taxes, etc.  

 

The chances of him getting a regular commercial loan are slim to none if he hasn't been able to show at least breakeven over the past few years.

 

An SBA loan will try him (and you) up personally far than credit card debt.  The SBA will attached to any asset you jointly own.  They will take 3rd, 4th, or higher position on mortgages, require assignment of any life insurance, secure CDs or stock, etc. 

 

Any IRS issues are a cause for great concern.  The IRS goes from mailing notices to seizing bank accounts in the blink of an eye.  I have seen this happen on several occasions.  Do you know why there is problem with the IRS? 

 

I think you are at the point of an ultimatum.  What is his line of work?  Could he get a full-time job and do his business on the side?  If so, maybe you could frame it as get a full-time job, pay of the debt and then revisit the self-employment idea.

 

It is really helpful to hear that it is fairly typical to avoid thinking about thinking about these kinds of details. Maybe there's something about the type of person required to start and run a business, a big picture, idea person that prevents thinking about the nitty gritty details. I'm a nitty gritty detail person with a strong math background, so it is had to imagine not thinking about that stuff.

 

The IRS problem seems to be fines for late filing of annual tax returns and late payment of payroll taxes. His accountant is looking into it, but I don't have very much confidence in her. She's either not very good, or she's trying to drop him as a client (he owes her money, too). Her work is good, but she's slow in getting things done.

 

I am not sure he could get a full time job given the economy right now, but I have asked him to get a part time job to supplement his income, but he refuses. He feels his time would be better spent focusing on the business.

 

 

Quote:

Originally Posted by zebra15 View Post

I agree with caneel. The IRS is a huge red flag.  you need to figure out what the deal is with the irs and clear that first and foremost before taking on any more debt, or considering any more debt.

Does DH have an accountant, an atty, a business planner?  Those might be good people to get involved at this point.

 

** our library frequently runs sba seminars

 

He has an accountant, but not a business planner. There are agencies in the area that work with small businesses; we're one town over from a business school and they offer many free services for local businesses. The problem is, he doesn't think he needs them. The credit card debt is 'investment' in his eyes, not debt, and every business requires investment. Once the investment pays off and the business becomes profitable, he'll be able to pay off the cards (this is what he says). But I wonder if I demanded he see someone from that organization they could help him see the actual financial picture. He's not hearing it from me, no matter how clearly I try to present it.

 

Quote:
Originally Posted by A&A View Post

 

 Why don't you have access to everything?  That's a red flag right there, I think.  Sit down with him and figure out just how in debt he really is.  He may not even know.  

 

I don't know if he is intentionally withholding information. He has an assistant who makes all sorts of mistakes. She mis-enters things into the computerized accounts, ignores things she doesn't know how to do, which means that he doesn't always know about unpaid bills and the account information available to him is inaccurate. He knows this, but keeps hoping she gets better. She's a good friend of mine and I am steering very clear of this aspect of the problem. He is also extremely confident that things are OK. He is so confident it is contagious and talking with him about it is almost hypnotizing. He presents this great story in a calming, relaxing voice, and for a few moments I believe it. (The IRS has been sending us letters, but S. is looking into it for us; the IRS has made mistakes before so S will work with them about it.) But then later I remember all the things he didn't mention and see all the holes in the story (The IRS hasn't made nearly as many mistakes as he has; he owes thousands to S, so she may not have much incentive to work on this quickly; the longer this goes unsettled the bigger the fines get). I've resorted to only communicating by email because then I have time to think about what he's said before responding, and can respond to the facts and not his reassuring nature.

post #6 of 25

So if you have a math background, and the assistant is making all kinds of mistakes (and therefore probably costing him money), why not fire the assistant (even though she's a friend), and do the work yourself (if you have time)?  That sounds like a really logical next step.   

 

But continuing this quagmire "as is" sounds like a really bad idea.  It could lead to bankruptcy very quickly.  

post #7 of 25

Who is responsible for filing the business's payroll and quarterly taxes? 

 

It sounds like he is in denial. 

post #8 of 25
I don't have time to post right now but wanted to mention I have just separated from someone who was always right around the corner from making money... for five years and hundreds of thousands of dollars down the drain not to mention lost income. I am shocked I let it go on so long. I would urge you to really make it a must he get financially accountable and make some commitments to find other income if not making money by a certain date.
post #9 of 25
* I wouldn't let my DP get as far as yours is into debt. when there are IRS issues, it's time for a long hard look at what's really going on. Things got out of control a long time ago.
post #10 of 25
Quote:
Originally Posted by zebra15 View Post

* I wouldn't let my DP get as far as yours is into debt. when there are IRS issues, it's time for a long hard look at what's really going on. Things got out of control a long time ago.

 

yeah, it sounds like the OP's dp has a very expensive hobby, instead of a job.

post #11 of 25
Also if it is increasing by several hundreds month does that take into account household expenses or are those being covered by debt too? And unless you really know I wouldn't trust that it was only several hundred a month. He may or may not really know the extend of his problem. When it happened to us were we blissfully sort of on purpose unaware. Until it hit the point I couldn't ignore it anymore. It still went on for years after that.
post #12 of 25
Thread Starter 
Quote:
Originally Posted by Springshowers View Post

I don't have time to post right now but wanted to mention I have just separated from someone who was always right around the corner from making money... for five years and hundreds of thousands of dollars down the drain not to mention lost income. I am shocked I let it go on so long. I would urge you to really make it a must he get financially accountable and make some commitments to find other income if not making money by a certain date.

 

I'm so sorry, that is so much debt to carry. Did separating from him get you free from any of the debt?

 
Quote:
Originally Posted by Springshowers View Post

Also if it is increasing by several hundreds month does that take into account household expenses or are those being covered by debt too? And unless you really know I wouldn't trust that it was only several hundred a month. He may or may not really know the extend of his problem. When it happened to us were we blissfully sort of on purpose unaware. Until it hit the point I couldn't ignore it anymore. It still went on for years after that.

 

He's pulling a salary from the business, so that, plus my income, is covering household expenses. If he didn't take personal money from the business, it wouldn't be in debt, because it does make enough money to run itself (assuming a full-time, volunteer workforce), but then our household would be in debt. 

 

Quote:
Originally Posted by A&A View Post

So if you have a math background, and the assistant is making all kinds of mistakes (and therefore probably costing him money), why not fire the assistant (even though she's a friend), and do the work yourself (if you have time)?  That sounds like a really logical next step.   

 

But continuing this quagmire "as is" sounds like a really bad idea.  It could lead to bankruptcy very quickly.  

 

Firing the assistant is a very logical next step, but he needs to come to that himself. Otherwise I'll just be held accountable for every problem that will arise from getting rid of her, from her unemployment to him having to do work he doesn't like. I'm simply not interested in being the bad guy. Instead I am going to insist he get business advice from someone else. Advice from a neutral party is always better received.

 

I used to do a lot of the work she does, but I can make more money doing other things and our family really needs me to make as much as possible right now. 

 

So I am hearing from all of you that this cannot go on longer, and the IRS stuff needs to be sorted out ASAP. My next step is to insist he get a consultation and advice from the small business resource center nearby and not take on any more debt of any kind until he has done that. 

post #13 of 25
Quote:
Originally Posted by Wild Lupine View Post

 

I'm so sorry, that is so much debt to carry. Did separating from him get you free from any of the debt?

 

He's pulling a salary from the business, so that, plus my income, is covering household expenses. If he didn't take personal money from the business, it wouldn't be in debt, because it does make enough money to run itself (assuming a full-time, volunteer workforce), but then our household would be in debt. 

 

 

Firing the assistant is a very logical next step, but he needs to come to that himself. Otherwise I'll just be held accountable for every problem that will arise from getting rid of her, from her unemployment to him having to do work he doesn't like. I'm simply not interested in being the bad guy. Instead I am going to insist he get business advice from someone else. Advice from a neutral party is always better received.

 

I used to do a lot of the work she does, but I can make more money doing other things and our family really needs me to make as much as possible right now. 

 

So I am hearing from all of you that this cannot go on longer, and the IRS stuff needs to be sorted out ASAP. My next step is to insist he get a consultation and advice from the small business resource center nearby and not take on any more debt of any kind until he has done that. 

 

 

So the business just breaks even?  That's not the same as the business going into debt each month.

You really need to separate business and household expenses; that will make dealing with the IRS easier (and more honest.)  

Maybe you need to cut personal expenses, or he needs to take a second job.  

post #14 of 25
Thread Starter 
Quote:
Originally Posted by A&A View Post

 

 

So the business just breaks even?  That's not the same as the business going into debt each month.

You really need to separate business and household expenses; that will make dealing with the IRS easier (and more honest.)  

Maybe you need to cut personal expenses, or he needs to take a second job.  

 

No, it's not breaking even. It's tens of thousands of dollars in debt, and the debt is increasing regularly.

 

Years ago, the business was profitable enough that it was his main source of income. It was a modest income, but we keep expenses low and I also work. Then he changed strategies and while the business still brings in money, it is not enough to cover all of it's expenses. If he volunteered all his time to the business then it would break even. If we were independently wealthy and could live off our trusts that would be OK, but sadly, we're not. There are no trusts, no savings, our modest mortgage is underwater so we can't refinance. I'm not in a high paying field, so we both need to be able to bring money into the household.

post #15 of 25
Quote:
Originally Posted by Wild Lupine View Post

 

I'm so sorry, that is so much debt to carry. Did separating from him get you free from any of the debt?

 

He's pulling a salary from the business, so that, plus my income, is covering household expenses. If he didn't take personal money from the business, it wouldn't be in debt, because it does make enough money to run itself (assuming a full-time, volunteer workforce), but then our household would be in debt. 

 

 

Firing the assistant is a very logical next step, but he needs to come to that himself. Otherwise I'll just be held accountable for every problem that will arise from getting rid of her, from her unemployment to him having to do work he doesn't like. I'm simply not interested in being the bad guy. Instead I am going to insist he get business advice from someone else. Advice from a neutral party is always better received.

 

I used to do a lot of the work she does, but I can make more money doing other things and our family really needs me to make as much as possible right now. 

 

So I am hearing from all of you that this cannot go on longer, and the IRS stuff needs to be sorted out ASAP. My next step is to insist he get a consultation and advice from the small business resource center nearby and not take on any more debt of any kind until he has done that. 

 

This is very wise of you.

 

Even if he volunteered all his time so it breaks even, I agree with the previous poster - he doesn't have a business, he has an expensive hobby.  I used to see similar situations all the time in my banking days.

 

I hope the consultations go well. 

 

I would go so far as to call the IRS and get the true picture from them, even if I had to do it behind his back.  Normally, I would never suggest going behind someone's back the IRS will, without any more notice than a letter, seize your bank accounts.  I have seen cases where spouses and partners were completely blindsided when one day, all their bank accounts were frozen.

post #16 of 25
Thread Starter 
Quote:
Originally Posted by Caneel View Post

 

This is very wise of you.

 

Even if he volunteered all his time so it breaks even, I agree with the previous poster - he doesn't have a business, he has an expensive hobby.  I used to see similar situations all the time in my banking days.

 

I hope the consultations go well. 

 

I would go so far as to call the IRS and get the true picture from them, even if I had to do it behind his back.  Normally, I would never suggest going behind someone's back the IRS will, without any more notice than a letter, seize your bank accounts.  I have seen cases where spouses and partners were completely blindsided when one day, all their bank accounts were frozen.

 

So I called the IRS and found out the situation was way worse than I thought. The debt to them is well into five figures and the issues go back years. DH's only responses to this were that he was meaning to look into it but has been busy, and that if we haven't done anything wrong the IRS cannot do anything. He really lives in a different world.

 

I'm now skipping past ultimatums and finding legal help.

post #17 of 25
I am so sorry this is happening to you. But glad for you that you are taking control.
post #18 of 25
Quote:
Originally Posted by Wild Lupine View Post

 

So I called the IRS and found out the situation was way worse than I thought. The debt to them is well into five figures and the issues go back years. DH's only responses to this were that he was meaning to look into it but has been busy, and that if we haven't done anything wrong the IRS cannot do anything. He really lives in a different world.

 

I'm now skipping past ultimatums and finding legal help.

DH, needs a wake up call.  Is the debt in DH name or both your names?  The IRS can and will seize bank accounts, assets, etc.  Can you stop using the bank and only deal in cash (IDK how much $$ 'you' have but just to be safe can you take it out of the bank?)  Now that the IRS has spoken with someone that just may be enough for the IRS to get active on collections.

 

Get YOURSELF to an attorney today.

post #19 of 25

Wow, I'm so sorry.  I know nothing about IRS issues or being self-employed or business loan debt but I really really sympathize with being in the tough spot of having a partner who you don't see eye to eye with on debt and savings and the financial future picture.  I would be really devastated in your position right now but at the very least you can be glad that you are in the position of seeking help instead of just continuing to let things go.  Doing SOMETHING is better than hiding your head in the sand trying to make it all go away.

post #20 of 25

Hey Lupine,

 

It sounds to me like you've married a salesman. :)

 

I married a guy who was also frequently self-employed and was met with a rude awakening once I dug into his business finances. Basically he had about 40k of cc debt. He also had some back tax issues with the state. I took over his financial management and with his money filed his returns and paid his few bills. I also sold off some of his domains to keep us afloat. It was a rough go but if you approach the problem in a way that doesn't make him feel like an idiot you will get a lot further. That is IF you want to keep your marriage intact.

 

I'd approach him and say that it isn't working the way it is so you want to "help". Letting his current assistant go may be odd since she is a friend but you honestly shouldn't be paying her a salary if she misses bills or omits less than pleasant data.

 

Get in there and check out the damage. Try to collect as much information as you can without shaming your husband because he will likely hide or minimize other information if he gets self conscious. You have some options depending on what state you are in but you should at least have a 3 month goal with your husband to stop hemmoraging money, get current on your bills and get back into the black. If that means he spends a day a week going over bills and paperwork with you -- so be it! Take one issue at a time and climb out.

 

<3

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