WHY YOU MUST KNOW ABOUT YOUR SPOUSE'S FINANCES
By PENELOPE WANG

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SOMETIMES THE MOST DOWN-TO-EARTH FINANcial lessons crop up in the strangest places--like politics. Take the much ballyhooed case of Rep. Enid Waldholtz (R-Utah). In a firestorm of public apology and tears that flashed on practically every TV screen, the congresswoman in early December blamed her estranged husband Joe, 32, for tangling their personal and campaign finances so badly that some observers think she may be forced to resign her seat. "This is the one area of my life where I completely let down my guard," said the first-term House member, 37, who has filed for divorce. She admits her campaign was funded illegally and that the couple failed to file 1994 income taxes. Federal authorities are looking into both Waldholtzes' finances, and Joe is being investigated by a federal grand jury for embezzlement of campaign funds and a $1.7 million check-kiting scheme.

Think nothing like that could happen to you? Think again. In many relationships these days, one partner takes over money management, leaving the other in the dark. And you can't count on claims of ignorance to spare you if your spouse gets into money trouble. Here are the three areas where your spouse could cause you the greatest financial hardship and how to protect yourself:

Income taxes. Married couples who file jointly are each fully responsible for any errors or inaccuracies on their returns, no matter who completes the forms. If your spouse can't or won't pay any taxes or penalties the IRS demands, you must come up with the full amount.

What if your spouse gave you false information, as Enid Waldholtz claims her husband did? Or told you the return was filed when it wasn't? The IRS permits a so-called innocent spouse defense that could get you off the hook, but most people fail to qualify for it. For one thing, you must prove you had no knowledge of the underpaid taxes and no reason to know about them. "A spouse with a high education level," explains Joseph Unger at M.R. Weiser & Co., a New York City accounting firm, "will be presumed to have more responsibility."

What you should do: "Don't let your spouse hand you your tax return at the last minute and expect you to sign it," advises Sheila Sachs, a Baltimore attorney. "And never let your spouse sign your return for you." Examine the forms and ask questions. If you have doubts, don't sign; file a separate return. That way, "you can reduce your legal liability," says Unger. "You can file a joint amended return within three years if you resolve the issues."

Credit-card debt. If you and your spouse hold a credit-card account jointly, you are responsible for any debts he or she racks up. When the card is in your spouse's name, you may be liable for charges you signed. In most states, though, you will not be legally obligated for his or her debts on that card. Still, cautions Victoria Felton-Collins, a financial planner in Irvine, Calif., "some creditors may come after you as a last resort if your spouse hasn't paid and they think you can." But in the nine states with community property laws, such as Arizona and California, you are generally responsible for any debts incurred during your marriage, including those your spouse racked up on his or her own.

What you should do: Review all credit-card statements and charges for unauthorized use. Once a year or so, check your credit report (see Money Helps on page 31 to learn how) for errors about your or your mate's debt payments. If you spot any mistakes, call or write to your credit-card company and the credit agency right away.

Business or mortgage debt. Chances are, if your spouse owns a business, you cosigned a loan guarantee to get financing for him or her. "Many small business owners must use jointly owned assets, such as a home, as collateral," notes Barton Resnicoff, a divorce attorney in Great Neck, N.Y. As a result, creditors can go after your assets if the business heads south. Similarly, if you have a home-equity credit line, you probably both signed for it.

What you should do: Review all loan or credit-line agreements that bear your signature to understand your obligations. Consider a joint meeting with a financial planner or an accountant if you think raising such matters will be difficult. "A neutral third party can help defuse issues," suggests Sachs.

That kind of meeting might have avoided a whole lot of grief for the Waldholtzes.