Question: My second husband and I have been married for 16 years. He is 72 and I am 63. He receives Social Security and a nice pension from the company he retired from 10 years ago. Since he turned 70, he has been taking money from his 401(k) and IRA. After he retired, he decided he would start a business. Well, he has been involved in six different businesses, all of which have failed. He started off using his own money, but when that was gone, he talked me into “loaning” him money for these ventures so that he wouldn’t have to take more money from his 401(k) and IRA to pay taxes. I now find myself $75,000 in the hole, and he says he won’t repay me because he has to pay the taxes on withdrawals from his 401(k) and IRA. So I stopped giving him money, and he became angry and threatened to divorce me. Needless to say, there are not many happy times in my home any more. Do I have a prayer of getting any of this money back?

Answer: That depends. Economic misconduct -- if that is what a court ultimately determines your husband did -- is treated differently in different states. Therefore, the first issue is for you to determine if the courts in your state have dealt with this issue and if so, how. This means you should seek the advice of a qualified matrimonial lawyer (www.aaml.org)

You should understand, however, that unless the terms of his 401(k) plan restrict borrowing, he could have borrowed up to half of his vested balance – but not more than $50,000 – instead of using your money. Generally, he would have been required to repay the money, with interest, within five years or face taxes and a penalty. If he had borrowed from his 401(k), he would have reduced the amount of money available to him later if he lost it.

In our view, a position you could take is that not wanting to risk more of his capital, your husband talked you into allowing him to use your money so that, in the end, he could better his economic position. In effect, he used you as an “investment banker” and continued to shove your money down those sinkholes. While it does not appear that he deliberately tried to blow your money, he apparently made bad business decisions, which you continued to fund. And he certainly didn’t do this behind your back.

While "poor business decisions" are one thing, if it is determined that your husband acted in bad faith with an intent to deprive you of your assets, that is quite another story. But remember that courts generally aren’t interested in becoming auditors of failed small marital businesses unless there is some type of smoking gun.

Bottom Line: While most spouses don’t take back notes when they lend money to the other, in situations like yours – and especially in second marriages – we believe that folks should be very protective of their assets and income. If you happen to secure a recovery here, your next challenge will be collecting it. Our advice: Don’t lend money to spouses for business ventures unless you are fully secured. If you are going to be treated like a bank, act like one.
Word to the Wise: When dividing marital assets, instead of battling spouses being left jointly owning assets so they can fight some more, the preferred methods should be to transfer title when reasonably possible, require a buy-out, or put the asset on the market for sale and divide the cash.