Divorce issue - stolen 401K

In My Humble Opinion
21

As best I can parse the OP, it appears that the OP says that the wife says that the wife’s lawyer says that the husband says that the 401K money was spent on “family debt”. Which info would properly have had to pass through the husband’s lawyer too; absent some limited special situations, lawyers generally don’t go talking directly to the other side’s client.

In other words, the entire pile of 401k money *may *have gone directly to his hookers and blow. We have no particular reason to believe the husband’s story. Plenty of people steal community money, or their spouse’s separate money in advance of a divorce then once divorce is filed and they’re found out they claim they’ve done something noble with it for the other person’s benefit.

It’s certainly *possible *the husband really pulled out the money and paid legit joint debts with legit joint money. My quarrel is with posters who’re assuming that’s absolutely true.
In all these two winners sound like they deserve one another. And that trying to chase the money will probably not be cost-effective for her.

22

It’s also possible that he drained the 401k as part of his plan to hide assets. It sounds like the wife was blindsided by the divorce request. If husband was planning the divorce for some time before it occurred, he may have systematically hiding assets – it’s been know to happen.

Or he could have paid mutual debts with the money as he said. Or as LSLGuy said, it could have gone for hookers and blow.

If I were the wife, I think I’d want proof of those mutual debts that were paid off. There has to be a paper trail.

It never fails to amaze me how some couples have one person who handles all the finances and the other is clueless about what is going on. A friend of mine found out when divorce was imminent that her husband had taken many thousands of dollars of equity out of their home, leaving the mortgage under water. The house was owned jointly – he just handed her papers to sign and she never read them.

23

Quick googling shows several sites clearly saying 401k’s acquired after marriage are community property in WI. It wasn’t stated in OP that I saw when the 401k was funded. Also the whole question has the complicated aspect, definitely over this non-lawyer’s head, of how the legal treatment would differ specifically in reference to divorce v whether the husband committed fraud. But the strength of latter case seems weak if she didn’t say anything after knowing it happened*, perhaps signed a tax return reporting it as income (or else she’s party to tax evasion, no purely good outcome there) and might have benefited from use of the money**.

*a statute of limitations not having expired is a necessary but not sufficient condition to pursue a complaint. It still weakens your case practically to make a civil or criminal complain now about something you knew about a long time ago, even within the technical statute of limitations.
**the most confusing sentence in OP is:
“Her lawyer is evasive on commenting about his liability for this money as he claims it was all spent on “family debt”.”
The lawyer claims or the husband claims? Does the woman know what was it actually spent on, at least by and large?

24

My wife is a banking attorney. She advises retail banks on matters of operational compliance.

Not a week goes by we’re not advising a bank on how to proceed when one of these account-draining schemes is detected. Sometimes in progress, or sometimes after the money is well and truly blown / snorted / untraceable in the Caymans, whatever.

Once in a great while we get a real Homer Simpson: somebody who walks into the branch and says “Hi. I’m going to file divorce tomorrow. I’d like a cashier’s check for all the money in our joint account please. Made out to just me please.” :smack: Those are easy. The answer is “No” and the account is instantly frozen. These Homers are always so crestfallen when the teller tells them “No.”. Sometimes Homer starts arguing and they end up calling the police to get the guy out of the branch. Banks get real quick responses when they dial 911.

We’ve seen the clueless spouse sign away their interest in a fully paid-for house. There’s really no upper limit to how hard somebody will try to “get revenge” on the person they’re divorcing. Pre-emptive revenge is definitely the most popular kind.

25

Sorry if this was confusing to some, its hard for me to summarize this kind of problem. I tried to limit the story to just the facts and then circumstances that seemed relevant, but it’s hard to know what’s relevant. And of course it’s a one sided story as well.

As far as the criminal element goes, my friend doesn’t see any benefit to pursuing this as she needs him to help support his kids. However, I’m still interested in how much the extenuating circumstances matter to the facts. The facts that seem relevant: she did not request the disbursement, sign the checks or (knowingly) receive the money. He acknowledges in email that he requested the disbursement, acknowledges the amounts and dates received and that he signed and cashed the checks. I certainly see how the extenuating circumstances would impact a prosecutor who is deciding whether or not to press charges. What I’m wondering is if there are attorneys who work in this field and have a reasonable basis to comment on how this kind of situation might be handled.

@LSLGuy: I’m guessing that the most relevant issue in determining whether the financial company who managed the 401K would be liable to her for the money would be to know whether they followed industry and legal standards in disbursing the funds. I can only guess that the ex husband did everything written and requested a check be sent to the family home. Do you think your wife would comment on whether this seems typical or reasonable? I would appreciate it very much.

The further challenge is that if the company is liable, I would think that they would pursue at least a criminal report against him. This goes back to not being in her best interest as it might impact his ability to support the kids.

In the end she just assumes that her naivety will leave her in the lurch. There’s nothing like learning the hard way. I’m hoping it doesn’t leave her bitter and distrustful, but that’s definitely where she is today.

To further the drama part of the story, her ex went to work for his brother’s tech firm 9 months before he walked out (he’s a security specialist). He left a $140k/year job and reported to the court that he is drawing $40K from his current employer. The court ordered him to pay $3/month for child support and spousal maintenance until a settlement is determined (she has been a stay at home mom for 10 years). I’m not sure how he is making that payment with that stated income, but she’s getting the check. In the meantime she’s making $12/hr and studying like mad to get a job as a software tester.

To top it off, the $40k in credit card transactions he is reporting as family debt is supposedly an “investment” in his brother’s company (the debt is more than that now but this was supposedly the amount “invested”). I’m not sure how he could use a credit card to transfer money to that company unless it was handled as a request for cash. Who would be that dumb? She hired a financial neutral for $750 to do a high level assessment of the value of the company given that the investment gives her an interest. The response was not to waste her time, they’ve not got much going on.

Though my friend is skeptical, I think that if her attorney has any skill at all it wont be hard to show a pattern of behavior that shows her ex was dumping assets and reducing income in expectation of a divorce. Though she will likely come out of this with debt and no savings at all, I think the best she can hope for is enough spousal maintenance and child support to keep her afloat until she gets her new career on the road.

Thanks for all of the responses.

26

Both my wife and I have probably signed things with the other person’s name on them for expediency’s sake. I bet that’s common for many couples, although it is technically not kosher. I bet I could even find emails from us saying “I signed the form for that thing and withdrew the money.”

Imagine, a few years down the road, we had an acrimonious breakup, and one of us tried to claim that the other perpetrated fraud using that evidence?

I’m not saying that that’s what happened with the person in question, but signing forms for financial transactions in someone else’s name with their implicit permission is probably not fraud.

Or, put another way, when your spouse forges your name on something, the time to raise hell about it is then not later, or else it’ll just look like sloppy transactions for expediency’s sake.

27

(Serious question follows, no snark intended) On what grounds can the bank say “no”? In the US a personal joint banking account is virtually always set up as “Or” ownership - either signer has absolute control over the account an any funds therein. Either signee can withdraw all funds at any time (oddly enough, one signer can’t remove the other from the account but could withdraw all the funds and open a new account in their name only. Banking regulations at work :smack:) Unless banking regulations have changed, there was no “unless divorce is pending” clause written into that contract. In fact, the common maxim when I was in banking was “In case of divorce, first one to the bank wins”.

Oh, lordy, do I have stories about divorces and bank accounts…

ETA - this is a bit of a highjack, as a 401k is completely different than a joint bank account.

28

This is in a community property state. You’re right that the funds are jointly owned and that, in general, either has the right to take any or all of them at a any time. But …

In the event of a divorce there are laws against “defrauding the community” of property by secreting funds from the formal legal court-supervised settlement process. Banks are, by law, enlisted in enforcing that. To the degree they’re made aware of it. Just as with deaths, and guardian appointments, there’s a bank employee whose job is to scan the court dockets to be aware of all filed divorce cases and flag the accounts appropriately.

Beyond that there’s the issue of the customer himself. Though just as often it’s herself.

Had Homer the customer never said “I’m filing for divorce tomorrow. …” then he’d have gotten his check no questions asked. And tomorrow the account would have been empty and it would have been an uphill fight for Marge to get her 50% share of it.

The bank is under no duty to inquire about use of the funds. And as a matter of policy doesn’t ask. But once the customer volunteers “I’m about to commit a crime/civil offense”, the bank is obligated by law to stand in the way.

Very similar laws apply to elder abuse situations. Which is the other common crime we see. Although that truly is a crime, not a matter of civil law. If daughter has signing authority on Dad’s account and makes apparently ordinary transactions no problem. If she comes in, wants a big mound of cash, and is talking about how Dad’s totally out of it at the nursing home or hospice and meanwhile she’s going to Acapulco, … well that withdrawal will not go smoothly.

Hence my calling them Homers; it’s a readl :smack: D’oh moment when they do that.

29

Late add due flaky internet connection: 401Ks are, by law, individual accounts. So this exact issue can’t arise with them. As are IRAs. Although in community property states (and perhaps others) they’re subject to QDROs by which the divorce court may force assets in one individual’s account(s) to flow to the benefit of the other.

Unrelated to divorce we do see power of attorney fraud and he/she signed her/his name fraud all the time. Exactly as in the OP’s story. Which again, if the bank happens to notice it for any reason, they’re obligated to stop it.

30

That makes sense. I’m not in a community property state, so those rules don’t apply.

31

Thanks for posting this. It’s cool to know, and not something I would have ever guessed.

32

The company holding the 401k may be liable if the signature on the disbursement is an obvious forgery. I know in my case a request for a complete disbursement will earn the client a direct call from me to confirm, even if the paperwork looks correct.

Alternately, pursue the husband for theft by fraud. It won’t get the money back but it might gain some satisfaction.

Also, the check should have been made out to her personally. I’d look into that as well.

33

What do you mean? The way you don’t declare it is to NOT put it on your tax return. There is no way for the IRS to know that you failed to include income until they do an audit against information they receive from the SSA. FYI, taxable declarations such as W-2s, 1098s and 1099s are actually sent to the Social Security Administration, not directly to the IRS. SSA compiles it all and sends it to the IRS, which isn’t til months after the tax filing deadline. That’s one reason why tax fraud is so easy and rampant.

(In February 2015 someone fraudulently filed 2014 tax returns using my husband and my SSN. They simply made up data to make it seem that they were owed $6000 back. It wasn’t until I filed a month later, and my e-return was rejected, that we realized that the IRS had been defrauded.)

That is why I said that she should check her tax returns for evidence of that 401k disbursement. It should be there, which is evidence that she knew (or should have known) about the disbursement. If it isn’t listed, then the IRS will eventually catch the error, at which time she’ll owe back taxes and penalties for failing to declare it on her 2014 return.

34

My husband is a financial advisor. He gets Homers, too. One memorable case was a 45-year old client who was making a boatload of money flipping real estate in Florida. While driving his new midlife crisis car, he met a gorgeous 25-year old (I’ll call her Candy), and began having an affair with her.

He actually brought her into my husband’s office to show her off, and to direct my husband to immediately change his designations of beneficiary from his wife of 20 years to Candy. My husband had to break it to them that he could do this…but only after informing his wife (who had no idea about Candy yet), and getting her to sign off on it.

Needless to say, both Candy and Homer were crestfallen.

But not as crestfallen as he was when, 6 months later, the real estate bubble collapsed. The good news is that the DOB issue resolved itself because he had no money left to bequeath. The bad news is that he lost his new Porsche, both condos in Florida that were suddenly under water, AND his wife. Candy, of course, stayed by his side. (And if you believe that, I have some real estate in Florida to sell you.)

35

It’s at the bottom of s sink hole now, but you shoulda seen the million dollar view before! Trust me!! :smiley:

36

“Taxable declarations such as W-2s, 1098s and 1099s” are called “information returns.”

It’s true that W-2s get sent to the SSA. They have information about wages subject to Social Security and withholdings for Social Security.
Instructions for Forms W-2 and W-3 (pdf, see page 5).

1098s and 1099s get sent directly to the IRS. The SSA doesn’t need them.
2016 General Instructions for Certain Information Returns (pdf, see page 7).

37

Thanks for the correction. My information actually came from an IRS fraud specialist, who was assisting me in getting a 2014 federal tax transcript after the state of Ohio sent me a notice just last month, saying that I owed them additional $$ because I’d claimed 2 exemptions on my 2014 federal taxes and 3 on my 2014 state taxes. I knew that my information was consistent because I used TurboTax for both returns. Turns out they were comparing their information with the fraudulent return.

I asked how the agent how this could have happened 2 years after the fact, and that turned into a lesson on how the various tax agencies get their information. He said that the feds get their info from the SSA, and there’s no checks against income until they get that data, but I guess he was just referring to just the W-2 information. Unless the state of Ohio asked for an updated SSA data file, they were comparing data they received back in 2014. It’s maddening how inefficient that system is.

Interesting side note: 25 years ago, when I used to work for a local municipality that taxed its residents 1% of all gross (not adjusted) income, they had nothing but the residents’ word to go on. They asked filers to include their federal taxes, but many didn’t, and they had no authority to go back and demand it, because there was no “or else” written into the law. I’m sure that loophole has been fixed, but I wonder how many residents under-reported their income, especially politicians who were aware of the loophole.