Preparing the financial home front for war

The costs can be high for reservists called to serve their country, not only due to salary differences but also because managing financial affairs from a war zone can be tricky.

Just ask Scott Rhodes. This is the second time the U.S. Naval Reserve member has seen action. The first time, when he was shipped off to Desert Storm, vandals damaged his vacant Virginia home. This time, he's trading the use of his hot tub for enough housesitting to make the place look lived in.

Reservists often are deployed without enough time to line up assistance like a wiser Rhodes did. So plans to safeguard your civilian lifestyle and fiscal affairs in your absence should be in place beforehand. Here are some ways to ease potential active-duty disruption.

Assign power of attorney
If you're leaving someone behind who might need to sell a car or house or enroll your children in school, they'll need a power of attorney to conduct business in your name.

Service people frequently give a general power of attorney to a spouse. But if someone else is managing your affairs, you can grant special powers of attorney spelling out exactly how they can be used.

Don't forget medical powers of attorney. These rights and responsibilities are different and worth considering if someone for whom you're responsible might need another person to make medical decisions.

Military legal assistance offices routinely provide a military power of attorney for service people to sign before shipping out. But retired Lt. Col. Jim Moon, deployment assistance program manager for USAA, a military financial services company, urges families to get more sophisticated legal assistance in advance. If you know which firms or government entities your family is likely to be dealing with while you're on duty, Moon says to ask what specific power of attorney is required.

"People go through (military) legal and think they are good to go," says Moon. "But when their spouse tries to act on their behalf, some businesses say it's not good enough and then they're in trouble."

Legal time-out for service
The Soldiers' and Sailors' Civil Relief Act, first passed in 1918 and updated after Operation Desert Storm in 1991, can ease some of the financial pressures you and your family might face.

The law suspends many civil legal proceedings. Bankruptcy proceedings, divorce cases and civil suits -- but not criminal cases -- can be put on hold until a service person returns home.

Foreclosures and tenant evictions also are halted. SSCRA limits tenant protection to people with rents of $1,200 or less. However, if you live in a region with a high cost of living, a court likely would grant greater protection.

And life insurance contracts can't lapse while the service member is on active duty or up to two years afterward.

Arrange for debt relief
SSCRA also will get you a temporary 6 percent interest rate on credit cards, auto loans, mortgages, equity lines and other installment loans.

But be careful. The protection extends to jointly held accounts but doesn't cover consumer debt held separately by a spouse. And the lower rate is only good on charges made before your call-up. It doesn't apply to debt incurred by you or your spouse once you're on active duty.

You can arrange for a retroactive refund of overpayments made while you're on active duty, but it's better to get things in order now. Prepare a letter for anyone who might be affected -- your creditors, attorneys, the Internal Revenue Service -- and ask for the guaranteed rate. The letter should include the account number for the loan, the date the loan originated and the date you entered active duty. Make it clear that your active duty status hinders your ability to repay the loan under the original terms.

Before you leave, mail your account holders the letter along with copies of your orders to active duty and the Leave and Earnings Statement that arrived with those orders. The LES explains what you'll be paid, how often and other pertinent financial information related to your activation.

In rare instances, creditors have tried to evade lowering an interest rate by arguing that the service person's financial situation was actually improved by active-duty status. The data on the LES can help prevent such claims. If a creditor refuses your request, you or the person with your power of attorney should contact a military legal assistance attorney.

Other financial moves to make now
Lowering interest charges is just one step in aligning your finances with your changed military status. Also look at:

• Electronic fund transfer between accounts and automatic bill payment: Even if your spouse usually handles these things, this can provide peace of mind for both of you.
  
  
• Overdraft protection or a line of credit: These options could come in handy if you or your spouse need emergency money quickly.
  
  
• Automated teller fees: Most ATM cards can be used worldwide, but the usage fees can differ significantly. If you are being sent overseas, find out what penalties apply to card usage there, and if necessary, consider a bank with more reasonable fees.
  
  
• Notification of local police and utilities: Your home is probably your biggest asset, so protect it by letting law enforcement know of your upcoming absence. Where appropriate, shut off utilities or ask about a limited-usage program. Even better, arrange for someone to check the property regularly. Reservist Rhodes, after dealing with vandalism during his earlier tour of duty, recommends a more formal arrangement than simply asking a relative to drive by now and then.
  
  
• Insurance policies: If you have a car that won't be driven, property that will sit empty or policies that will expire while you're gone, make changes now. If you'll be taking along expensive personal items or storing them, ask about renters' insurance to cover your property while you're in military housing or while it's in storage.

Get professional help
You also might consider talking to a financial planner, especially if active duty is going to cut your income drastically. Professional advice could help get you and your family through this crisis.

And a money professional can offer guidance as you evaluate your family's financial situation if the worst should happen and you don't come home. Does your life insurance policy have a war exclusion? The military will provide $250,000 in life insurance, and your survivors will be eligible for regular payments and Social Security, but this may not be enough if you have large financial obligations.

Expert help could come in handy, too, when it comes to taxes. If you're serving in designated combat zones, much of your military pay and reimbursements will be exempt from federal tax. The military paymaster will take care of this delineation for you, but you can find a listing of exactly what type of compensation or benefit is deemed taxable or exempt in IRS Publication 3, Armed Forces Tax Guide.

Your shift to active duty could affect other tax-related financial matters, such as retirement plans, student loans and relocation expenses. Publication 3 offers general guidance, but if you are a high-income earner or your tax situation is complicated, consider hiring an accountant or financial planner familiar with military situations.

Talk to your employer
Since you're a reservist, you'll return to civilian life relatively soon. To make re-entry smooth, talk with your boss before you leave.

Your employer is legally obligated to let you fulfill your military service and then give you the same or similar position when you return. Make the transition easier for all by being open about your schedule and putting your desk in order for your temporary replacement. If you're self-employed, now's the time to figure out who will run the business and to let clients know of your impending absence.

Generous employers may continue all or part of the salaries of employees called to active duty. It never hurts to ask your company's policy.

And find out how your workplace benefits will be handled. While you're on active duty, you're eligible for military health insurance, but unless your doctor participates, your family may have to change physicians. For that reason, some people choose to keep their regular policy in force. If it's through your employer, discuss that option.

Prepare to communicate from afar
Finally, plan now on the best way to stay in touch. A variety of phone plans offer savings on overseas long-distance calls. Before you run up a big bill, find out if you can do better via a calling card, a dial-around service or a different company.

E-mail is even more economical, and experienced military people say it is available almost anywhere -- even in Afghanistan -- but you'll need a Web-based account. If you'll be e-mailing someone without regular computer access, now's the time to help them establish a similar Yahoo or Hotmail address they can use at an Internet café or library.

As Lt. Col. Moon says, "Preparing to go to war is like preparing for a tornado. You'll go through a range of emotions, including wanting to avoid the whole topic, but you'll be sorry if you do."

Jennie L. Phipps is a contributing editor based in Michigan.