Do you have to take over the house in a divorce? Expert warns that women often make disastrous choices
Do you have to take over the house in a divorce? Financial expert warns that women often make a disastrous choice – and explains what to do instead
- One study suggests that women’s income drops by 41 percent after a divorce
- Expert Marissa Reale says “financial illiteracy” is getting divorced people into trouble
- Here she explains everything they need to know before signing an agreement
Divorced women are too quick to settle the house and should instead consider splitting their ex-partner’s 401(K), a leading expert warned.
Financial planner Marisa Reale specializes in helping women make the most of their divorce and has advised more than 300 clients.
She said financial illiteracy is the core issue most divorcees face — meaning they often settle with immediate benefits rather than considering the long-term plan.
According to the latest available data, approximately 689,308 divorces took place in 45 U.S. states in 2021, with couples spending an average of $7,000 to dissolve a union.
And the consequences can be catastrophic for women. A 2018 survey from online marketplace Worthy found that 44 percent of women at various stages of the divorce process had debts they wanted to pay off.
Financial planner Marissa Reale has warned that divorcees are too quick to settle the house and should instead consider splitting their ex-partner’s 401(K)
Separate figures from the U.S. Government Accountability Office’s special report to the Senate showed that women’s household income drops an average of 41 percent after a divorce.
“Women often want to take the family home in a divorce because of the comfort aspect,” Reale told Dailymail.com.
‘But the problem is that the house requires more maintenance and mortgages. I always advise you not to take the house until the maintenance amounts to less than 30 percent of your income.’
This is especially the case amid volatile mortgage rates that recently rose to 6.57 percent.
Reale adds that divorcees often overlook the value of asking to split their ex’s 401(K) because they’re too focused on their immediate safety.
This is especially important for couples who have children, as one partner – usually the woman – is forced to give up work while their babies are young.
As a result, they no longer pay into a 401(K). Employees already pay too little to their pension funds.
A report last month from Fidelity Investments, the largest provider of 401(K) plans in the US, found that a paltry 29 percent of people are on track to cover all their living expenses in retirement — up from 38 percent in 2020.
And these figures do not take into account the added burden of a career break.
Therefore, couples have the option of splitting the main breadwinner’s 401(K) in a settlement.
To do this, couples must apply for a Qualified Domestic Relations Order (QDRO). The split depends on several factors, including the balance of each 401(K), how the 401(K) is taxed, and the value of other assets.
Where the couple lives also plays a key role, as laws in what’s known as a “common property” state dictate that couples must divide marital property 50/50.
However, an “equitable distribution” state distributes assets according to what a judge deems just – not necessarily 50/50.
If a judge agrees that the retirement should be split, it can be split one of four ways: split the 401(K) itself, split assets of similar value, roll over a portion of the fund, or liquidate a portion of it.
But Reale warns that the question of whether it’s taking the family or the 401(K) in the home varies on a case-by-case basis.
She said, “The most important thing for women is to find a professional and take full stock of their finances.
“The biggest mistake they often make when going through a divorce is not taking into account how much their costs will go up each year.”
Reale specializes in helping women make the most of their divorce and has advised over 300 clients
Reale recommends that women with children add a so-called “cost of living” (COLA) clause to their divorce.
In effect, this means that child support payments automatically go up depending on how much the average cost of living has increased.
She added, “What has shocked me the most about this job is how much financial abuse takes place.
“So many men keep their wives in the dark about finances. I’ve seen men have letters delivered to different addresses and some even start moving their belongings before they even say they want a divorce.
“I recently saw a woman whose husband put her on a strict budget of $1,000 a month during their marriage and if she went over that she was in real trouble.”