Don’t Cash Out Your 401(k) in Divorce

It is common for divorcing spouses to cash out retirement funds at divorce time. And it seems to make sense at the time. There are expensive lawyers and all sorts of expenses to establish a new residence. Support payments may be delayed or non-existent. A retirement fund seems like great solution. It’s a pile of money that you weren’t going to use for a long time, and you have financial needs now.

But it should be the absolute last resort, because it’s so costly in both the short term and long term.

Retirement accounts like 401(k)s and IRAs create a tax deduction now (when money is contributed to it), and then taxes are paid when the funds are withdrawn at retirement time. The government wants us to keep the money in those accounts until we retire, so there are disincentives to withdraw the money early. If you take an early distribution from a retirement account, you’re going to pay income taxes on the money you withdraw, plus a 10% federal penalty for early withdrawal, plus any penalties your state may impose. I tell people to count on losing about 50% of the money they withdraw to taxes and penalties.

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Divorce Fraud Red Flags

The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.

Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated. A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money.

Beyond using intuition to determine if something is wrong, there are plenty of warning signs that indicate the finances should be evaluated carefully. These red flags by themselves do not mean that money has disappeared or the finances are being manipulated. But they are signs that an investigation is warranted. Because divorce is so adversarial, it is likely that one or both of the spouses will conceal or manipulate financial facts.

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Divorce Lifestyle Analysis Data Entry

A question often comes up relative to the lifestyle analysis in divorce cases: Isn’t is just data entry that anyone could do? Why do I need a forensic accounting expert? As I explain below, the lifestyle analysis is NOT just a data entry exercise. A level of quality control is necessary in order to ensure … Read more Divorce Lifestyle Analysis Data Entry

Miley Cyrus and Liam Hemsworth Divorce: No Spousal Support

Miley Cyrus and Liam Hemsworth were married in December 2018, and filed for divorce less than a year later. They had dated on and off for ten years before getting married, and the reasons for their split are in dispute.

It was widely reported a couple of days ago that the divorce was final, but actually the divorce doesn’t become final until six months after the filing date. That means Miley and Liam will be officially divorced in February.

Miley and Liam worked out a divorce settlement in December, and it involves neither of them receiving spousal support from the other. Why is no one receiving alimony? Two reasons may be in play here. First, it has been reported that there was prenuptial agreement, and it likely says that no one receives spousal support.

Second, even if there was not a prenup dictating these terms, it is likely that neither would receive spousal support because they each make plenty of money independently. In other words, neither Liam nor Miley needs money from the other person to maintain their lifestyle.

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Business Lifestyle Analysis


Closely held businesses present special challenges in the family law setting. Typically, only one spouse is actively involved in the business. Therefore, not only does the spouse control the family’s finances, he or she also controls all of the records of the business. When a spouse is attempting to quantify the income from the business or the value of the business, the spouse who works actively in the business can purposely (and often very effectively) obstruct attempts to get accurate and complete data.

Certain types of businesses, such as restaurants and retail stores, can be prone to manipulation because they have so many cash transactions. Construction companies, real estate ventures, and auto dealerships are notorious for “creative” bookkeeping. Professional service providers, such as doctors, dentists, and attorneys are at risk for financial maneuvering because it is so difficult to verify the amount of professional services actually provided to patients or clients.

Any business that is closely held and has finances that are easily manipulated by the owner is at risk. If this happens, the “out” spouse is left looking for alternatives to get to the bottom of the finances. Techniques used in a personal lifestyle analysis can also be applied to businesses to ferret out the truth about the money.

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Deposition Questions for Financial Expert Witnesses

The second edition of Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets has more than 25% new material. I’ve updated the book for tax law changes, I have added material that clarifies topics covered the first time around, and there is brand new material.

One of the new parts of the book relates to the direct examination of financial expert witnesses, especially during depositions. The deposition is the time for the attorney to dig into the background and qualifications of the forensic accountant. It is also the time to ask probing questions about the work done, the the choices made with respect to the financial analysis, and the opinions expressed in the report (or maybe opinions they have but didn’t enumerate in the report).

I have a Direct Examination Checklist in the book that I think attorneys will find invaluable. I can’t replicate the entire list of questions here, but I’m going to give you some snippets of the list of general lines of questioning that you can use with a financial expert witness:

Background and qualifications

  • Educational background—Include both formal education and continuing professional education.
  • Credentials obtained—When were they obtained? How?
  • Credentials not obtained—Why not? Is the expert not qualified for them or did the expert simply choose to not get them?

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Do-It-Yourself Divorce?

divorce financial analysisWho gets rich in divorce? They say only the attorneys and experts.

I’ve seen firsthand the high cost of divorce. I typically work on divorces for higher income individuals. They’ve got more complicated financial situations, and that’s my specialty. With the complications comes a lot of arguing, it seems. And even when the parties are fairly friendly, there is just a lot of stuff that has to be sorted out, and there is a cost to the attorneys and experts.

Fancy divorce attorney Laura Wasser is often  hired by celebrities to sort out their situations. She says a “typical” divorce (that’s one for the likes of you and me) will cost $20,000. Ouch. So she created a site to help people have do-it-yourself divorces.

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Is January Really Divorce Month?

You’ve probably heard people talking on social media that January is “divorce month.” In other words, more divorces are filed in January than any other month.

Is it true?

MarketWatch says it is.  But their evidence was only anecdotal. They talked to some divorce lawyers who put a number to the divorce cases that come into their practices… They say new cases are 25% to 30% higher than other months.

That’s hardly scientific. But let’s accept it as true for the moment. Why might it be? Some say it’s because many couples want to have one last family holiday season before telling their children they’re getting a divorce. Others say the stress of the holidays pushes some couples over the edge. Still others say that “new year, new you” also applies to married life for some. And in some cases it’s financial: the spouses are waiting for a year-end bonus or other year-end financial event.

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