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wisco_nick

Dad has spent his entire 401k and I'm trying to help my mom through this sticky situation.

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Hey all. I've personally had some tremendous success on this site a couple years ago and currently have a TU FICO of 787, up from 593 and I'd like to thank all the great advice, information and people on this site... Today I'd like to share a very unfortunate situation involving my parents and am looking for opinions on what to do.

 

My dad (62 years old) who has been with the same company for 30 years was laid off in 2006 and then went back to work for the same company as an independant contractor making approx $10k / mo. There were periods that he did not work for months at a time since 2006. He has been without work for about a year now and the contract he was supposed to get for 2012 fell through.

 

My mom (56 years old) works in retail and has been employed for the last 10 years. She makes about $25k / year and withholds 20% for her 401k.

 

Their monthly bills look like this approx:

Rent $2100

Utilities $250

Car $400 own (worth $14k owing $10k on loan).

Health insurance $1700

Cable / Internet/ Cell $300

Variable costs for food, gas, etc of probably $2000.

Total not including credit card payments approx $4750 fixed costs and $2000 variable costs = $6750

 

Additionally they support my sister who lives in California and attends College.

Rent/ Utilities etc $1200

Car $350 lease

Variable costs $500

Total costs approx = $2050

 

Grand total is approx $8800

 

Aside from spending money my mom really doesn't do much with the finances. Oblivious my be the best word to describe it. About 2 months ago my dad dropped a huge bomb on my mom and told her that he had completely depleted his 401k valued at over $300,000.

 

To add to the issues there is approx $50k to $100k in back taxes that are due based on my dads consulting income over the last 4 years. Because we have lived overseas for several years (1984-1996) I am not clear if the $300k+ that was tapped from my dads 401k is coming from an account where the distributions are taxable or not. My mom has consulted with an accountant and has filed her taxes (she just found out my dad didn't file their 2009 or 2010 taxes). She filed an individual tax returns. My dad has consented to signing an 'innocent spouse irs tax form'. At the end of the day I'm not sure what if any tax obligation my mom has within these affairs.

 

The only assets remaining are a house in Europe that my grandmother (still living) transferred into my moms name about 5 years ago, and about $80,000 in my mom's 401k (she still works for the same employer). The house has been in our family for generations and is a beach house worth approx $150-250k.

 

Needless to say my parents DO NOT see eye to eye right now. They are 2 months late on rent at their primary residence and my dad has flown to California to stay with my sister leaving my mom with instructions to take $5000 out of her 401k under a hardship distribution to pay the rent.

 

I pulled my mom's credit report and looks like the total credit card debt is approx $40k that is tied to her SSN.

 

The only income stream currently is about $2000/mo which my mom makes at her current job. My dad through a Pension will be receiving about $2500-$3500/mo supposedly starting this month.

 

My mom is ready to pull the plug on everything, just pack a bag with a one way ticket to Europe and live at our house there. Either that - or move out and rent a small 1 bedroom for $700-$800 and just sit tight, until I guess something snaps?

 

Overall there is no plan and no direction except that my mom would like to pull funds from her 401k to pay off her credit card debt $40K and any back taxes that she may be liable for, which we are estimating is $5k after the "innocent spouse" form is filed (the back tax part is still just a mere guess).

 

Do you folks have any polite advice?

Edited by wisco_nick

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A couple of things:

 

1. Your mom should not tap her 401k to pay credit cards. She is too close to retirement. Never trade unsecured debt like that for real funds that produce a penalty. She can file bankruptcy to get rid of the cards, at $2000/mo and $40k in debt.

 

2. If I am reading this right, your parents do not own their primary residence? They rent it?

 

3. The properties complicate this. She should consult a bankruptcy attorney, and bring the details of ALL the finances.

 

4. She, unfortunately, will have to cut your sister off. Your sister's expenses alone are more than she makes. She needs to take care of herself right now since your father seems to be taking the bury the head in the sand approach, and even with the pension, they do not make enough to be paying $2000/mo for your sister.

 

Short term:

 

She needs to rent another, much cheaper place to live while she still has the credit to be able to do so, since breaking a lease or defaulting on rent payments may harm her credit.

Cutting off your sister, while painful for all, and reducing the rent to about $800/mo will save $3350 a month right there. Next step is to tackle the $2000/mo in variable costs. Assuming an astronomical amount of $500/mo in gas, where is the other $1500/mo going? That is a lot of food for 2 people. Those bills need to be looked at more closely.

 

So, let's say we can cut that in half to $1000/mo which is still QUITE A BIT for food, gas, incidentals for 2 older adults.

 

That leaves us with total expenditures per month of $5750. That is still very high, but it is manageable if she is bringing home $2000 and your father has take home pension funds of $3500/mo. Understand that this is still living paycheck to paycheck and your parents have nothing to retire on. Both parties need to keep working. The health insurance needs to be looked at. Etc.

 

And to be completely honest, and I may get flamed for this, divorce may need to be considered if they do not see financially eye to eye right now. That is a separate but related issue. She should absolutely, 100% not take $5000 out of her 401k to put everything off by 1 month of bills. She needs to protect that money for herself and not use it to further the problem of your father's spending.

 

Understand that to burn through $300,000, assuming that he did not pay the penalties and taxes associated, he had to spend more than $50,000 more than he made every year from 2006 on. That is 5 additional months of income spent each year for the past 6 years. There was a spending problem here that needs to be alleviated, now.

Edited by kb1gra

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Thanks for the reply.. yes they rent their primary residence. The variable expenses include insurance and other bills such as credit card payments etc. It's a tough situation with my sister because she has a medical situation where she can't exactly support herself financially and its hard for her to live a normal life... We have seen a bankruptcy attorney. Maybe not a good one but they are stating that the house in Europe would more than likely complicate things or have to be sold.. Thing is, my grandmother lives there currently... Separation or divorce may be imminent. I've advised my mom to stop paying her credit cards completely and move into a smaller apartment ASAP... Morally I don't think she has it in her to stop paying her credit cards even when I've told her that they should be her lowest priority.

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I am so sorry to read this, it absolutely breaks my heart for your Mom. I'm sure she feels so betrayed and lied to. :(

 

Your sister's car lease seems like something that can be eliminated to me, is that possible to get out of? And yes, if your parents are renting, they definitely need a place that isn't so expensive.

 

My thoughts are with your family right now, I'm sure this is so difficult.

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Thanks for the reply.. yes they rent their primary residence. The variable expenses include insurance and other bills such as credit card payments etc. It's a tough situation with my sister because she has a medical situation where she can't exactly support herself financially and its hard for her to live a normal life... We have seen a bankruptcy attorney. Maybe not a good one but they are stating that the house in Europe would more than likely complicate things or have to be sold.. Thing is, my grandmother lives there currently... Separation or divorce may be imminent. I've advised my mom to stop paying her credit cards completely and move into a smaller apartment ASAP... Morally I don't think she has it in her to stop paying her credit cards even when I've told her that they should be her lowest priority.

 

the house in her name may be a problem. I'm not an attorney so I can't speak to it. That could potentially be resolved in a divorce settlement if she is awarded the beach house.

 

I suppose she does have a 3rd option, to return to Europe, but she would need to understand that if she did that, and I am absolutely not advising that she do so, she would really be unable to return to the US again, especially if she tries to skip out on a tax lien.

 

If your sister cannot work or live a normal life, she can file for disability. The money just isn't there to sustain a $2000/mo lifestyle for a student, no matter what the reasoning might be.

 

However, the immediate steps would be:

 

1. Find a cheaper apartment and plan to move, immediately.

2. Stop paying any and all credit cards. Her credit will be trashed, but that's fine, since she does not have need for additional credit at her age and position.

3. If that health insurance also includes your father, have her price out an individual policy. While I don't necessarily advise leaving someone out on their own, that is essentially what he is doing to her and she needs to protect herself.

4. Do you have any capability to help your mom out financially with this?

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So sorry to hear this OP.

Any idea what dad used the $$$$ for?

Was he trying to keep things going while he was out of work?

 

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I am so sorry to read this, it absolutely breaks my heart for your Mom. I'm sure she feels so betrayed and lied to. :(

 

Your sister's car lease seems like something that can be eliminated to me, is that possible to get out of? And yes, if your parents are renting, they definitely need a place that isn't so expensive.

 

My thoughts are with your family right now, I'm sure this is so difficult.

 

 

My mom is not doing so well. Thanks so much for the kind words.

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What happened to the money? $300,000 from the 401k, $10,000 a month in his income? Did they have expenses in line with that much money being spent?

 

I don't intend to be mean, but my first thought in reading this is your dad is trying to pull one over on your mom -- either because he spent money on things she doesn't know about and he doesn't want her to know about, or it's not spent as much as its "missing" so it doesn't become half hers in a divorce.

 

I don't think you can begin to rectify the situation without first nailing down what happened to the money.

 

There may be an underlying problem that will keep coming back if it's not addressed.

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What happened to the money? $300,000 from the 401k, $10,000 a month in his income? Did they have expenses in line with that much money being spent?

 

I don't intend to be mean, but my first thought in reading this is your dad is trying to pull one over on your mom -- either because he spent money on things she doesn't know about and he doesn't want her to know about, or it's not spent as much as its "missing" so it doesn't become half hers in a divorce.

 

I don't think you can begin to rectify the situation without first nailing down what happened to the money.

 

There may be an underlying problem that will keep coming back if it's not addressed.

 

$8800 in expenses a month is $105k a year. OP said father had been out of work a year and been in and out of work for the past 5-6 years. Its completely conceivable that he could have spent $300k just trying to stay afloat....

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What happened to the money? $300,000 from the 401k, $10,000 a month in his income? Did they have expenses in line with that much money being spent?

 

I don't intend to be mean, but my first thought in reading this is your dad is trying to pull one over on your mom -- either because he spent money on things she doesn't know about and he doesn't want her to know about, or it's not spent as much as its "missing" so it doesn't become half hers in a divorce.

 

I don't think you can begin to rectify the situation without first nailing down what happened to the money.

 

There may be an underlying problem that will keep coming back if it's not addressed.

Find out if it would be illegal for her to transfer the Europe house to you, that way she is free to do what she needs to do and that house will not be an issue.

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So sorry to hear this OP.

Any idea what dad used the $$$$ for?

Was he trying to keep things going while he was out of work?

 

 

Really just to keep things going at home. I also believe he spent quite a bit of money on keeping my sister in school in California. The lifestyle and the money my parents spent was unrealistic over the last 5 years.

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What happened to the money? $300,000 from the 401k, $10,000 a month in his income? Did they have expenses in line with that much money being spent?

 

I don't intend to be mean, but my first thought in reading this is your dad is trying to pull one over on your mom -- either because he spent money on things she doesn't know about and he doesn't want her to know about, or it's not spent as much as its "missing" so it doesn't become half hers in a divorce.

 

I don't think you can begin to rectify the situation without first nailing down what happened to the money.

 

There may be an underlying problem that will keep coming back if it's not addressed.

Find out if it would be illegal for her to transfer the Europe house to you, that way she is free to do what she needs to do and that house will not be an issue.

I'm pretty sure you can't do that right before filing for bankruptcy -- fraudulent conveyance.

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What happened to the money? $300,000 from the 401k, $10,000 a month in his income? Did they have expenses in line with that much money being spent?

 

I don't intend to be mean, but my first thought in reading this is your dad is trying to pull one over on your mom -- either because he spent money on things she doesn't know about and he doesn't want her to know about, or it's not spent as much as its "missing" so it doesn't become half hers in a divorce.

 

I don't think you can begin to rectify the situation without first nailing down what happened to the money.

 

There may be an underlying problem that will keep coming back if it's not addressed.

 

Well keep in mind also that when you pull funds from an IRA or a 401K especially that there is a mandatory 20% federal tax withholding on the funds coming out. With a rollover IRA you have the option of withholding any amount from 10-100% for taxes which is then immediately transmitted to the IRS, similar to the taxes that come out on a paycheck. So in reality some of the taxes have been withheld from the 401k redemptions, realistically the 300k was 240k or so after the taxes were withheld. Some of the years he was working their taxable income was in excess of $150k - I should check if the taxable income includes the IRA withdrawls or not. I really need to get with a well qualified accountant.

 

Regarding the credit card debt though, do you guys agree that she should stop paying it completely? What would the plan be with that portion of the equation... Also are there tax reduction attorneys for Federal Taxes..?

 

I'm heading home right now to have dinner with her...

 

Financially I'm early in my career and making approx 55-65k a year I really don't have much that I can fork over considering my Bachelor lifestyle is in full bloom.. I could maybe offer $500 / mo in support. I know my other sister (who lives here in Wisconsin) pays the families car insurance which is $400 / mo.

Edited by wisco_nick

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Thats sad to hear but i dont think your mom should be mad at him (forgive me for poking my nose).Nor do i think it should have been a bombshell to her as the $$$ was coming from somewhere.He could have been out gambling or blowing it all on some young harlot but he tried to keep things going with the expectaion that he would get stable work and everything would be okay.

As a bread winner its hard to let things fall apart especially when you have people depending on you.Part of the problem is your father not blowing the whistle and letting ppl know exactly where things stood with the finances. (really hard to do)Another part of the problem is family members not looking at the situation and asking how is it possible that dad can maintain being unemployed for so long. A good father will do anything to make sure their kids go to college and the rent is paid...even at the expense of his own security. Right or wrong That selflessness is a sign of a great provider. Sure he should have paid his taxes but he may not have seen how he could afford to when his job situation was so uncertain.

Please forgive me for saying/asking but a college education is VERY expensive. Given that dad was unemployed (or at least under employed for an extended amount of time) why did you guys allow him to take on such a burden?

I am defininately not pointing the finger at anyone of you as no one but him is to blame for letting it get this far but i can only imagine myself in that situation. And if my dad was un or underemployed and struggling, as his child, i couldnt imagine having him pay my bills. I would (at least) find a way to pay my own way.

Its a bad situation all around but i cant help but .... I dont know. I hate even commenting but i really feel bad for the guy.

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A random bk lawyer isn't going to suffice. You have credit issues, tax issues, estate issues, and potentially family law issues at work. Both parents need comprehensive legal advice and serious financial consulting.

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Thats sad to hear but i dont think your mom should be mad at him (forgive me for poking my nose).Nor do i think it should have been a bombshell to her as the $$$ was coming from somewhere.He could have been out gambling or blowing it all on some young harlot but he tried to keep things going with the expectaion that he would get stable work and everything would be okay.

As a bread winner its hard to let things fall apart especially when you have people depending on you.Part of the problem is your father not blowing the whistle and letting ppl know exactly where things stood with the finances. (really hard to do)Another part of the problem is family members not looking at the situation and asking how is it possible that dad can maintain being unemployed for so long. A good father will do anything to make sure their kids go to college and the rent is paid...even at the expense of his own security. Right or wrong That selflessness is a sign of a great provider. Sure he should have paid his taxes but he may not have seen how he could afford to when his job situation was so uncertain.

Please forgive me for saying/asking but a college education is VERY expensive. Given that dad was unemployed (or at least under employed for an extended amount of time) why did you guys allow him to take on such a burden?

I am defininately not pointing the finger at anyone of you as no one but him is to blame for letting it get this far but i can only imagine myself in that situation. And if my dad was un or underemployed and struggling, as his child, i couldnt imagine having him pay my bills. I would (at least) find a way to pay my own way.

Its a bad situation all around but i cant help but .... I dont know. I hate even commenting but i really feel bad for the guy.

 

 

In aggreement with this. I find it all too coincidental that the month in which dad starts to get his pension distribution he drops this bombshell on your mother and leaves for another state which is more consumer/debtor friendly. Let me ask...whose idea was it that your sister go to school in CA? Are you getting my drift?

 

He emptied the accounts, leaves behind cc debt tied to her SSN and no real estate to worry about splitting except what was gifted to her! This was planned, plain and simple.

Edited by katwoman

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It's a tough situation with my sister because she has a medical situation where she can't exactly support herself financially and its hard for her to live a normal life.

 

She's well enough to go to college, an out of state college, and be alone? And to get an education that she'll be using to secure a career where she'll support herself financially? She can also drive this leased car? And she's not disabled/qualified for SSI, or any aid? But, who is paying tuition?

 

Just trying to get some clarification. I'm a parent of a disabled 20 yr old son w a rare medical condition, and there are options for families facing these issues, but I'm confused without clarification.

Edited by twizzle

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It's a tough situation with my sister because she has a medical situation where she can't exactly support herself financially and its hard for her to live a normal life.

 

She's well enough to go to college, an out of state college, and be alone? And to get an education that she'll be using to secure a career where she'll support herself financially? She can also drive this leased car? And she's not disabled/qualified for SSI, or any aid? But, who is paying tuition?

 

Just trying to get some clarification. I'm a parent of a disabled 20 yr old son w a rare medical condition, and there are options for families facing these issues, but I'm confused without clarification.

 

Ok well I wasn't planning on throwing this out there but she has really bad OCD as in it takes her a half hour to go to the fridge and get a bottle of water because she has to shut the fridge door just right before she can move away with the bottle of water. She has been in and out of institutions for this. Suicidal at times, panic attacks, eating disorder, body dysmorphic disorder, ADD, depression, mild bipolar disorder... She's been diag'ed with a slew of things but mainly what it all boils down to is her OCD. She's been on and off meds forever. Probably since age 14. Lexapro, wellbutrin, concerta, you name it. They can't seem to find something that works but then again she' s mostly been looping on and off Lexapro for years.

 

As far as the Cali plan it was my sisters idea to move out there in conjunction with my dad because my other sister (the one that still lives here in WI) was pretty much all dialed in to take a job with "GUESS Brand" in Orange county but I think she decided to stay in WI because of her long term relationship with her boyfriend who she now lives with.

 

Bottom line is that my Mom is sitting in a $2000/mo rental 3 bedroom townhouse emptynesting, 2 months late on rent, with an income of $400wk take home approx, with $40k worth of CC debt. When I was there last night for dinner she showed me CC statements where my Dad is taking cash advances on any CC's that still have any room under the credit limit.

 

ALSO I JUST FOUND OUT THAT he borrowed $20,000 cash from my sisters boyfriends mom (they are very very well off).... THIS WAS 2 weeks ago before he went to California and he did not pay the rent on the house. He took a flight to CA with 2 months unpaid rent and $20k cash. My mom says that she does not have access to the funds nor does she know what bills are paid. I can only assume he has paid his health insurance etc (he is diabetic) and taken care of my sisters rent, car and possibly tuition.

 

To top it all off my dad has had a stroke (I think 2 so far in the last years) and HE HAS NO LIFE INSURANCE!!!!

 

I'm so upset right now I'm beside myself...

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Ok well I wasn't planning on throwing this out there but she has really bad OCD

 

And you don't need to throw all that out there. rolleyes.gif Just some simple clarification is fine, so thank you. As far as your sister, my son also has OCD/anxiety issues that are due to his neuro issues/brain injury, so I can relate to what a struggle it is to live with. It's tough is a bit of an understatement, eh?

 

Financially, there are options for adults who are unable to support themselves due to a psychological disability such as an anxiety disorder, of course, including SSI, state aide, etc. (You can Google SSA, and the criteria for each disorder to qualify as a disability.) When my son turned eighteen, we began the process of securing all avail supports for him. My husband and I just aren't able to be his lone financial and physical support for the remainder of his life-and he will require care and support for his lifetime. There are agencies who can help you see what, if any, help your sister might qualify for. I'd start with her state's Div of Human Services FAQ. But, I'll be honest, I would expect to have some issues and to be prepared for them if she is able to successfully attend college in preparation for a career and function well enough that she can live on her own out of state.

 

 

Good luck to all of you, because, really, the financial aspects here are nothing compared to the pain you all must be going through. I'm so sorry you have to go through this, each of you.

Edited by twizzle

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I was going to suggest that maybe your sister try and get SSi/Ssdi (if she's worked or tried working) If not they may award her Ssi. That may help with some of the stress your parents have in trying to financially support her. But, with all the cuts going on in CA.. I'm not sure if this is feasible but it's at least worth a shot.

 

I also believe they may help with schooling... but I'm not 100% positive on that.

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I was going to suggest that maybe your sister try and get SSi/Ssdi (if she's worked or tried working) If not they may award her Ssi. That may help with some of the stress your parents have in trying to financially support her. But, with all the cuts going on in CA.. I'm not sure if this is feasible but it's at least worth a shot.

 

I also believe they may help with schooling... but I'm not 100% positive on that.

 

Exactly. The good news, though, is she could move back home if her home state had better resources/options. (And. If she qualifies for benefits, they're expected to be used to support her, meaning for her food and rent, classes. So even if she's living at home, she'd be contributing.)

Edited by twizzle

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