Dear Quentin,
My husband no longer wants to marry me.
I’m 61 and he’s 51. In 2006, I left my job and used my 401(k) to pay off all our debt. A few years later, he applied for and received a credit card in his name, which he used to buy me an anniversary gift: a three-stone diamond ring. And we started racking up debt again.
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In 2012 I stopped working because I became incapacitated for work. He was in favor of me quitting because of my health. I used my 401(k) for living expenses because doctors found a parasite behind my husband’s eye. He was unable to work for a month. I sold my Jeep to pay our expenses.
Six months after I stopped working, I became eligible for WAO. With SSDI I only got $500 less than when I was working. Last year I sold a Jeep so we could pay off all our debt. Starting next month we only have our mortgage and his car payment.
And now? We are getting divorced. We were married for 20 years in March. Am I entitled to half of his 401(k), which is currently valued at $275,000? How would that withdrawal work? He wants to give me his 401(k) in exchange for our house, which is worth $250,000.
What do you think? He thinks I can use the money from his 401(k) to buy a house or use a house as a down payment. Is he trying to deceive me?
Soon to be divorced in Wisconsin
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Dear Soon,
I have a question for you. Why doesn’t your husband use the money from… are 401(k) to Buy a House or Use as a Down Payment? As a general rule of thumb, people don’t make big gestures in a divorce unless it benefits them – and I’m going to take it a step further here – more than it benefits you.
Wisconsin, as you probably know, is a community property state, so any assets brought into the marriage are community property and as such are divided 50/50 in a divorce. So any contributions made to his 401(k) over the last twenty years would be considered community property and were, I assume, his peak earning years.
You should already be receiving 50% of those contributions because that’s the law in your state, and you deserve them because you liquidated your own 401(k) to pay debts that were due, at least in part, to the disease your husband. You did something good. Now it’s time for him to give back, even if he does so reluctantly.
Don’t take my word for it: talk to your attorney and CPA. But since you asked, if you took your husband’s entire 401(k), you would have to pay income taxes on your withdrawals, so the divorce settlement should take that into account. If you gave him the house, he would walk away with a $250,000 asset that will likely continue to appreciate in value.
Tax Liabilities of 401(k)s
“When dividing retirement assets, the court is required to consider the tax consequences for both parties,” said Karp Iancu, a law firm with offices in Wisconsin. “It is the ‘industry standard’ in Wisconsin family courts to reduce the cash value of retirement accounts (excluding ROTH IRAs) by 20%.”
“Dividing a 401(k) in a divorce is also a bit like dividing a pension and a bit like dividing an IRA,” the company adds. “As with pensions, the account can only be divided with a special court order, a qualified domestic relations order. But like IRAs, they can be easily valued by simply looking at the balance in a checking account.”
Your letter shows that you both contributed to a lifestyle in which you lived beyond your means. And yes, people often get into debt because no matter how hard they try, they can’t make ends meet without putting some expenses on a credit card. Now that you are planning to live apart, you will see who is best able to live within their means.
About that credit card: Should your husband have taken out a credit card for a three-stone diamond engagement ring after you cashed out your 401(k) before you were 59 ½ and had to pay a 10% early withdrawal penalty? No. You both have to take responsibility for that. Was that the real/only reason he took out a credit card? Probably not.
If he continues to make risky financial decisions based on ‘want’ rather than ‘have to’, your divorce will not be the end of his financial near misses.
Previous columns by Quentin Fottrell:
My father ‘intentionally and hurtfully’ cut my late sister’s two children out of his will. How can I ensure that they get a fair share?
‘They left nothing but rubbish’: My brother cleared out our father’s house. Years after his death it remains empty. What can be done?
‘My brother and sister are villains’: My siblings have taken control of my late mother’s estate and won’t reveal the contents of her trust. What shall I do?
