Should you take the house in a divorce? A financial expert warns that women often make a dire choice – and explains what to do instead
- Study suggests women’s income drops 41% after divorce
- Expert Marissa Reale says ‘financial illiteracy’ causes hardship for divorcees
- Here she explains everything they need to know before signing a deal
Divorced women are too quick to take the house in a settlement and should consider splitting their ex-partner’s 401(K) instead, a leading expert has warned.
Financial planner Marissa Reale specializes in helping women get the most out of their divorce and has advised over 300 clients.
She said financial illiteracy is the main problem facing most divorcees – meaning they often accept a settlement with immediate benefits rather than considering a long-term plan.
According to the latest available data, some 689,308 divorces took place in 45 US 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 study by online marketplace Worthy found that 44% of women at different stages of the divorce process were in debt and focused on paying it back.
Financial planner Marissa Reale has warned that divorced women are too quick to take the house in a settlement and should consider splitting their ex-partner’s 401(K) instead.
Separate figures from the United States Government Accountability Office Special Report to the Senate found that women’s household incomes drop 41% on average after marital separation.
“Women often want to bring the family home in a divorce because of the comfort aspect,” Reale told Dailymail.com.
“But the problem is that the house needs more maintenance and mortgages. I always recommend only taking house if maintenance is less than 30% of your income.
This is especially true in an environment of mortgage rate volatility which recently climbed to 6.57%.
Often, Reale adds, divorced people overlook the value of asking to split their ex’s 401(K) because they’re too focused on their immediate safety.
This is particularly important for couples who have children because one of the partners – usually the wife – is forced to stop working while their children are young.
As a result, they stop paying into a 401(K). Already, workers contribute too little to their pension funds.
A report released last month by America’s largest 401(K) plan provider, Fidelity Investments, found that just 29% of people are on track to cover all their living expenses in retirement. , compared to 38% in 2020.
And these figures do not take into account the additional burden of career interruption.
That’s why married couples have the option of splitting the primary breadwinner’s 401(K) in a settlement.
To do this, couples must apply for a Qualified Domestic Relations Order (QDRO). The allocation will depend 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 the laws of what is called a “community property” state dictate that couples must split marital property 50/50.
However, an “equitable distribution” state divides assets in what a judge deems to be an equitable manner – not necessarily 50/50.
If a judge agrees that the pension should be divided, it can be divided into four ways: sharing the 401(K) itself, sharing assets of similar value, deferring part of the fund, or liquidating part of it.
But Reale cautions that whether to take the family home or the 401(K) varies on a case-by-case basis.
She said: “The first thing for women is to seek out a professional and take stock of their finances.
“The biggest mistake they often make in a divorce is not factoring in their rising costs each year.”
Reale specializes in helping women get the most out of their divorce and has advised over 300 clients
Reale recommends women with children add what’s called a “cost of living adjustment” (COLA) clause to their divorce.
In concrete terms, this means that child support payments automatically increase with the increase in the average cost of living.
She added: “What shocked me the most about this job was the extent of the financial abuse.
“So many men keep their wives in the dark about finances. I’ve seen men get letters delivered to different addresses and some even start moving their belongings before they even say they want a divorce.
“More recently I saw a woman whose husband put her on a strict budget of $1,000 a month during their marriage and if she went over it, she was in real trouble.”
