401K loan & WI Mac Davis Calculator

[621kl]

What is the name of your state (only U.S. law)? WI
How does a 401k effect Mac Davis caluations for spousal maintenance? (after tax payroll deduction)

Husband make $93K/yr, has $20K debt, rents, pays $465 child support to this wife
Wife make $40K/yr, has $50K debt, $820/month house payment, $250/month prop taxes & insurance

Goal: reduce maintenace payments, (17 yr marrage), divorce initiated but no offers made

Stratagy: Husband takes 401k loan and pays down wifes debt. Husband gets balance sheet benifit for increased debt and reduces wifes debt. Does husband get benifit with Mac Davis calulations for reduced income and increased debt? How does reducing wife's deft effect maintenance arguements?

 

[Bali Hai]

What is the name of your state (only U.S. law)? WI
How does a 401k effect Mac Davis caluations for spousal maintenance? (after tax payroll deduction)

Husband make $93K/yr, has $20K debt, rents, pays $465 child support to this wife
Wife make $40K/yr, has $50K debt, $820/month house payment, $250/month prop taxes & insurance

Goal: reduce maintenace payments, (17 yr marrage), divorce initiated but no offers made

Stratagy: Husband takes 401k loan and pays down wifes debt. Husband gets balance sheet benifit for increased debt and reduces wifes debt. Does husband get benifit with Mac Davis calulations for reduced income and increased debt? How does reducing wife's deft effect maintenance arguements?

Two separate issues for court to decide.

1) Property settlement:

Total debt: $70k. $30k obligation to both.
Child support: State statute. My guess, much more than $465/month.
Wife retains marital residence, buys out husband, pays out 1/2 equity and refinances with lower mortgage payments.
Husband and wife split respective 401k's evenly.

2) Alimony:

17 year marriage.
Income disparity: $53k.
$26.5k alimony to wife annually will equalize earnings. Not likely but possible.

 

[LdiJ]

Two separate issues for court to decide.

1) Property settlement:

Total debt: $70k. $30k obligation to both.

70k divided by two is 35k each

Child support: State statute. My guess, much more than $465/month.

Possibly, spousal support figures into the child support calculation. If I remember correctly child support does not get calculated until after spousal support is deducted from the payer's income and added to the payee's income. Certainly if spousal support reduces child support could increase, because the numbers would change.

Wife retains marital residence, buys out husband, pays out 1/2 equity and refinances with lower mortgage payments.

We can't say that Bali...if they already have a good interest rate and lots of equity the mortgage payment could end up higher. We don't have the facts needed to make that determination.

Husband and wife split respective 401k's evenly.

Yep, mostly likely.

2) Alimony:

17 year marriage.
Income disparity: $53k.
$26.5k alimony to wife annually will equalize earnings. Not likely but possible.

Agreed...that is the worst case scenario for husband.

 

[LdiJ]

What is the name of your state (only U.S. law)? WI
How does a 401k effect Mac Davis caluations for spousal maintenance? (after tax payroll deduction)

Husband make $93K/yr, has $20K debt, rents, pays $465 child support to this wife
Wife make $40K/yr, has $50K debt, $820/month house payment, $250/month prop taxes & insurance

Goal: reduce maintenace payments, (17 yr marrage), divorce initiated but no offers made

Stratagy: Husband takes 401k loan and pays down wifes debt. Husband gets balance sheet benifit for increased debt and reduces wifes debt. Does husband get benifit with Mac Davis calulations for reduced income and increased debt? How does reducing wife's deft effect maintenance arguements?

I don't see how that can help you. You and your wife have 70k of marital debt (well, at least the assumption at this point is that its marital debt), all that would do is trade one form of debt for another. The two of you would still have 70k of marital debt. That would be part of the property settlement, and would be unlikely to have an impact on spousal support or child support.

Now, it could be a negotiating tool to get her to accept less spousal support in mediation...if you are taking on all of the marital debt, but only a local attorney is going to be able to tell you if it would be of any help if a judge has to decide. However it won't even help in negotiating unless she and her attorney perceive a benefit to her. In other words, if she ends up with less marital assets because you keep all of the marital debt, that may or may not appeal to her...depending on the entire financial picture.

Basically, what is going to be happening here is that if your wife is going to be keeping the house, or wants to keep the house, the details of that are going to factor into whatever negotiating she is willing to do...and whatever negotiating you should be willing to do. You haven't given us any financial details regarding the house.

 

[Bali Hai]

What is the name of your state (only U.S. law)? WI
How does a 401k effect Mac Davis caluations for spousal maintenance? (after tax payroll deduction)

Husband make $93K/yr, has $20K debt, rents, pays $465 child support to this wife
Wife make $40K/yr, has $50K debt, $820/month house payment, $250/month prop taxes & insurance

Goal: reduce maintenace payments, (17 yr marrage), divorce initiated but no offers made

Stratagy: Husband takes 401k loan and pays down wifes debt. Husband gets balance sheet benifit for increased debt and reduces wifes debt. Does husband get benifit with Mac Davis calulations for reduced income and increased debt? How does reducing wife's deft effect maintenance arguements?

How about wife takes half of husbands 401k, and pays her share of the debt and mortgage with alimony payments? When her marital debt is paid, any remaining alimony is gravy.

When wife hires lawyer and goes to court, she will be in the drivers seat, not you.

 

[621kl]

House details and retirement details

The house is worth $160,000 on the balance sheet but may sell for less, probably $130,000. There has been little maintenance. Mortgage is $53,000 (6 years left) and home equity revolving inline of credit with a balance of $14,000. Current taxes are $2200 / yr and insurance is $1,000 yr.

What are the benifits of paying off some of the debit before a settlement? Wife's total retirement assets (in her name) are $140,000 and the husbands total retirement assets (in his name) are $350,000

 

[LdiJ]

The house is worth $160,000 on the balance sheet but may sell for less, probably $130,000. There has been little maintenance. Mortgage is $53,000 (6 years left) and home equity revolving inline of credit with a balance of $14,000. Current taxes are $2200 / yr and insurance is $1,000 yr.

What are the benifits of paying off some of the debit before a settlement? Wife's total retirement assets (in her name) are $140,000 and the husbands total retirement assets (in his name) are $350,000

Normally paying off marital debt, by taking on other debt, really doesn't help. However, in your case I could see some possible benefit.

If wife is going to keep the home she needs to be able to refinance it into her own name. While the house has a lot of equity, if she has to refinance for enough to buy out your share, and has 50k of debt already in her name, its highly unlikely that she would qualify, even including alimony payments.

So...that leaves you some negotiating room. You have 350k in retirement assets to her 140k. Normally that would mean that you would have to give her half of the difference between your two accounts, or 1/2 of 210k or 105k. You could negotiate that you would take on her 50k of debt, and forego your share of equity in the home, if she foregoes her share of your retirement account. If FMV of the house is 130k minus the 53k mortgage balance that is 77k in equity and half of that is 38.5k. Half of the marital debt is 35k, so you would be giving up 73.5k in her half of the debt and home equity, in exchange for keeping 105k of your retirement account. (assuming she agrees) If you point out to her that she would have to pay taxes on her share of your retirement account if she uses it to pay debt instead of rolling it over into an IRA of her own, that could be quite attractive to her.

The value of that is that she would likely qualify for a mortgage for 53k plus closing costs, would end up with a much lower mortgage payment, and therefore would need less spousal support. The additional upside is that you would definitely get off the mortgage and wouldn't have to worry about her having a negative effect on your credit if she has problems paying the mortgage.

The downside to that is that you would end up with a much higher debt load, (401k loan) which might making paying less alimony a moot point. The other downside is that your child support might increase as she would have less income to include in the calculation if she receives less alimony. However, you would have to come up with some money anyway for your share of the marital debt.

That illustrates some of the complications of a marital debt/asset settlement as well as alimony/child support issues. You either have to work out the numbers as clearly as possible before you start negotiating, or you have to bite the bullet, sell the house, split each retirement account, split the marital debts and let the court decide child support and alimony.

I just realized that I forgot the 14k home equity loan, that throws the numbers off. That increases the amount she would have to finance, and lowers the equity in the home.

 

[Bali Hai]

The house is worth $160,000 on the balance sheet but may sell for less, probably $130,000. There has been little maintenance. Mortgage is $53,000 (6 years left) and home equity revolving inline of credit with a balance of $14,000. Current taxes are $2200 / yr and insurance is $1,000 yr.

What are the benifits of paying off some of the debit before a settlement? Wife's total retirement assets (in her name) are $140,000 and the husbands total retirement assets (in his name) are $350,000

Paying off debit should benefit both of you.

Alimony is a separate issue and the judge decides what your alimony obligation (if any) will be if wife demands it.

I have a feeling you're not getting the picture. Women in your wife's position usually get alimony, because it's traditional.

 

[621kl]

Back to MacDavis

So is the argument for lower maintenance, Wife has less expenses, so wife doesn't need as much maintenance? (i.e. no debt payments and lower mortgage payments - assuming refinancing terms are better than current mortgage.) Will this change in expenses be reflected in the MacDavis calculation?

 

[Bali Hai]

So is the argument for lower maintenance, Wife has less expenses, so wife doesn't need as much maintenance? (i.e. no debt payments and lower mortgage payments - assuming refinancing terms are better than current mortgage.) Will this change in expenses be reflected in the MacDavis calculation?

The traditional argument will be that you caused your wife to be disadvantaged during the marriage and kept her from reaching her full potential. Courts attempt to equalize the standard of living for both parties moving forward after divorce with alimony.

Just because your wife might have less expenses doesn't mean a judge won't decide on alimony higher and longer due to the perceived disparity of future income. This means the harder you work and earn more money, the more of your money the court has to play with.

Look at movie stars and the ridiculous amounts of alimony awarded way beyond what the average person needs for a comfortable living.

 

[LdiJ]

So is the argument for lower maintenance, Wife has less expenses, so wife doesn't need as much maintenance? (i.e. no debt payments and lower mortgage payments - assuming refinancing terms are better than current mortgage.) Will this change in expenses be reflected in the MacDavis calculation?

What I am saying is that you would use that in your negotiations with your wife. It doesn't look like its necessarily included in the calculator, but you don't necessarily WANT the judge to be deciding alimony and property division, you want to be trying to come to an agreement between the two of you.

Like I said, you need to be working this all out on paper, several different ways to see how it all plays out.

 

[CJane]

Child support: State statute. My guess, much more than $465/month.

Yeah. More like $1200-$1300.

 

[LdiJ]

Paying off debit should benefit both of you.

Alimony is a separate issue and the judge decides what your alimony obligation (if any) will be if wife demands it.

I have a feeling you're not getting the picture. Women in your wife's position usually get alimony, because it's traditional.

Bali, since he wants to take a loan from his 401k to pay the debt, its just exchanging one form of debt for another. That is not automatically a benefit. It might be a benefit if he works up all the numbers, but it may not be either. How much interest would apply to the 401k loan vs the other debt would be a factor as well.

 

[Bali Hai]

Bali, since he wants to take a loan from his 401k to pay the debt, its just exchanging one form of debt for another. That is not automatically a benefit. It might be a benefit if he works up all the numbers, but it may not be either. How much interest would apply to the 401k loan vs the other debt would be a factor as well.

True, I was referring to paying down the debt using marital assets other than a loan from 401k money.

OP apparently doesn't realize that the ex is entitled to half his 401k ($150k). As well as $70k of her own 401k totalling $220k.

If OP is talking about paying down the marital debt with a loan from his portion of the marital 401k's in exchange for lower or no alimony, wouldn't that benefit both of them?

The unknown here is the value of the alimony award if any. That depends on the judge. If OP were to draw a judge who split debt and assets down the middle and decided no alimony, (the way it should be) OP would be better off not to negotiate an agreement where he takes on more debt for lower alimony that the judge wouldn't order in the first place.

I don't favor agreeing to pay alimony, because once that's done, you're stuck with it. Personally, I would take my chances with the judge.

 

[LdiJ]

True, I was referring to paying down the debt using marital assets other than a loan from 401k money.

OP apparently doesn't realize that the ex is entitled to half his 401k ($150k). As well as $70k of her own 401k totalling $220k.

If OP is talking about paying down the marital debt with a loan from his portion of the marital 401k's in exchange for lower or no alimony, wouldn't that benefit both of them?

The unknown here is the value of the alimony award if any. That depends on the judge. If OP were to draw a judge who split debt and assets down the middle and decided no alimony, (the way it should be) OP would be better off not to negotiate an agreement where he takes on more debt for lower alimony that the judge wouldn't order in the first place.

I don't favor agreeing to pay alimony, because once that's done, you're stuck with it. Personally, I would take my chances with the judge.

Bali...we have a long term marriage with a huge difference in income. He is already paying temporary alimony, or at least knows the numbers that are going to be used. He is going to be paying alimony. The question is how much. I suspect he knows already what the judge will order if it goes in front of the judge. Therefore coming to an agreement is his better bet if he can make the numbers work in such a way that they both benefit.