In a letter to a financial advisor, a 61-year-old woman shared that her 51-year-old husband no longer wants to be married to her after 20 years together. Throughout their marriage, she used her 401(k) to pay off debts and cover life expenses when she became disabled and had to stop working. They accumulated debt again when her husband bought her a diamond ring on credit, and she sold her Jeep to cover expenses while he was off work due to health issues. Now, they are getting divorced, and the woman is questioning if she is entitled to half of her husband’s 401(k), which is valued at $275,000.
The financial advisor suggests that, as assets contributed during the marriage are considered community property in Wisconsin, the woman should already be entitled to 50% of her husband’s 401(k). The advisor questions why the husband is proposing giving her his 401(k) in exchange for the house, which is worth $250,000, as it may benefit him more than her. The advisor advises the woman to consult with her attorney and CPA to determine the best course of action. Dividing the 401(k) in the divorce may involve income tax implications for withdrawals, and the settlement should take this into account.
The law firm Karp Iancu states that courts must consider the tax implications when dividing retirement assets, and it is common practice in Wisconsin family courts to discount the present value of retirement accounts by 20%. The firm explains that dividing a 401(k) in a divorce requires a qualified domestic relations order, and the account can be easily valued by looking at the current balance on an account statement. The woman and her husband lived above their means during their marriage, leading to debt and financial struggles, and now that they are planning to separate, they will need to adjust their spending habits accordingly.
The financial advisor points out that the husband’s decision to take out a credit card for an expensive engagement ring after the wife cashed out her 401(k) early and incurred penalties was not wise. Both parties need to take accountability for their financial decisions during the marriage. The advisor warns that if the husband continues to make risky financial choices based on wants rather than needs, the divorce may not solve his financial issues. The woman should take steps to protect her financial interests and work with professionals to ensure a fair split of assets during the divorce proceedings.
