It’s not always easy to leave a relationship in the past, especially when there’s a child involved. But sometimes, those ties to an old flame can burn your finances in the here and now.
That’s the situation Beth from Philadelphia is in. She called into The Ramsey Show because her husband rents out his New Jersey house to his ex-girlfriend. The reason for this tie is that they have a daughter together, and his goal with that arrangement has been to maintain a stable environment for the child.
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The problem is that Beth’s husband’s ex is consistently late with payments, which is negatively impacting his credit score. And since Beth and her husband now want to buy their own house together, that’s a problem.
A tough situation
Beth’s husband bought his New Jersey house in 2016-2017. The house is in his name, Beth told show hosts John Delony and Jade Warshaw.
He’s been renting the home to his ex for five years. But he hasn’t been collecting rent payments from his former partner. Rather, he left her to pay the mortgage herself.
The reason for the arrangement, as Beth explained, was that the breakup wasn’t amicable. Beth’s husband wanted to interact with his ex as little as possible, but still wanted to be responsible for their shared child. The mortgage payments are now up to date, but in the past five years, the ex has been late on 20 payments.
Beth’s husband is “on top of his finances with the exception of this situation". The late payments have lowered his credit score to the low 700s.
"That’s not as bad as I would expect," Warshaw said.
To qualify for a conventional mortgage, Beth’s husband would need a minimum credit score of 620, according to Experian. But the higher the score, the more favorable mortgage terms they’ll qualify for. Warshaw and Delony recommended that Beth’s husband try to sell the house as soon as possible and move on, especially since his ex has married someone else. They suggested giving the ex six months’ notice to find a new place, which is more than reasonable.
"I wouldn’t make a big drama about it,” Warshaw said. “I wouldn’t go talk about the past missed payments. I would just say, ‘Hey, it’s been five years, I think we’ve all moved on.’"
Beth expressed some concern about the impact on her husband’s daughter.
"The last thing he wants to do is throw them out," she said.
But, Warshaw and Delony insisted that giving six months’ notice to vacate isn’t leaving the ex and the daughter in the lurch. They also suggested that Beth’s husband could try to sell them the house at a reasonable price. Otherwise, the ex should be given a six-month notice, with the stipulation that if they pay their rent or if they damage the house, then that timeline will be accelerated. In that case, they’ll have to leave in 30 days.
If that threatens his daughter’s financial well-being, Delony suggested Beth’s husband could negotiate a new custody agreement where he sees her every other weekend. But, they need to sever the financial connections for Beth’s husband’s sake.
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The cost of mixing personal and financial choices
It’s not unusual to end up in a situation like Beth’s husband, where your desire to help someone you have a personal relationship with compromises your finances. And it doesn’t have to be an ex. It could be a sibling or a grown child or another close relation.
Of course, the problem with helping someone you care about, you might end up with financial problems of your own. Those could include diminished savings and a negative effect on your credit score, making it harder for you to buy a home of your own.
For example, imagine co-signing for a loan to help a sibling out, but they fall behind on payments. That could leave you on the hook for those payments instead.
That’s why it’s important to be careful. In the situation above, what Beth’s husband could’ve done was to enter into a formal lease agreement with his ex, including a payment schedule and penalties for late payments.
Between now and when Beth’s husband sells the house, Warshaw and Delony suggested that a formal arrangement be put in place that outlines the consequences of not paying on time.
Had there been financial consequences to missed payments, the ex would’ve been more careful, sparing Beth’s husband whatever credit score damage he sustained.
Any financial arrangement you have with a close relative should be made in writing so that each party understands their rights and obligations. Also, be careful with whom you choose to help. In this situation, Beth’s husband has a responsibility to help his ex because they share a child.
It’s not easy to say no to a former partner or family member. But, for the sake of the relationship, as well as your finances, it’s important to be firm and honest when it happens.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
