Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

Divorce and debt

Dear Dollar Diva,
I am trying to get myself situated to file for divorce. My husband has caused me many credit problems, has us in major debt, and refuses credit counseling. I have a 401(k) and am only entitled to what I had in there before the marriage and half of what was in there after the marriage.

Since I know my husband will not pay half of our debts, is it smart to borrow from my 401(k) so he doesn't get half and not pay for bills? Will I lose more by doing this?

Will I lose more in investments by taking out a large loan to pay the bills off, or should I take the risk of him not paying pursuant to court order? I can't see giving him half of the 401(k) in a lump sum because I know he will not pay me and will probably squander the money he gets.

-- K.

It's too bad your husband turned out to be so irresponsible. However, it is what it is, and now it's time to pick up the pieces. Here are a few things to consider in making your decision regarding the debts and 401(k) plan:

• When you think of equitable distribution in a divorce there are three columns -- what goes to the husband, what goes to the wife and items not subject to equitable distribution, i.e. non-marital, such as inheritances and pre-marital assets.

• If you don't think your husband will pay his share of the debts, you can put his share of the debts in your column as well as his share of the assets to pay for them in your column. If one of the assets is your 401(k) plan, make sure you take a subtraction for the penalties and tax you will have to pay for early withdrawal to pay the bills. Normally, withdrawing from a 401(k) to pay debts is not a good idea, but it beats giving him the money from the 401(k) plan to squander and ending up having to pay the debts yourself.

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• If you borrow from your 401(k) plan to pay the debts, you're going to be replacing your current debts that he's not going to pay with a debt to your 401(k) plan that he's not going to pay. You end up holding the bag. And if you leave your company, you will have to pay the loan back fast, or end up having it re-characterized as an early withdrawal subject to a 10 percent early withdrawal penalty, plus a 15 percent or 28 percent income tax on the withdrawal.

• How did your husband cause all of these credit problems? Did he gamble? Did he spend the money on items that benefited only him, not the family? If he dissipated family assets, you are entitled to a refund of your share of the marital assets he threw away.

• There are a number of different ways to compute the equitable distribution of assets, such as retirement plans, when premarital and marital are co-mingled. Make sure you compute it in such a way as to give the premarital portion the greatest value possible.

• I hope this helps you. A good attorney is a girl's best friend at times like this! Don't use a regular attorney -- he may have a cheaper hourly rate, but he'll spend a lot more time on the details than someone whose practice is limited to divorce and family law.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.