Dear Penny: How Can We Recover the $300K My Husband Lost on Penny Stocks?

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Dear Penny,

I am nervous. I have three kids in college, and I just found out my husband lost 80% of our retirement money ($300,000) on penny stock investments. He has lost money on penny stocks before — around $80,000 once and $10,000 another time in an investment account. 

I’m 54 years old. I only make myself about $20,000 a year. He makes quite a bit of money — like 10 times my salary. But I’m nervous that he will continue to make bad financial decisions. He gets angry if I try to talk to him about it. 

I don't know what to do, but it seems like a damn shame. It’s sad because that money could have been spent on my kids’ education or just kept for retirement. He will not remove the money from the penny stocks because he says, “That’s what stupid people do.” He truly believes these companies will become successful one day. What should I do? 

— Sad in New England

Dear Sad,

Your husband has lost big on penny stocks three times over, to the tune of nearly $400,000. Of course, that’s only the money you know about. I’m not sure how you “just found out” about your husband’s enormous losses, but it doesn’t exactly sound like he’s been forthcoming. I wouldn’t be surprised if there are even more big losses you don’t know about.

Listen to your gut. Bad financial decisions are very much in your husband’s future.

Dear Penny

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I get countless letters from people whose partners have left their finances in shambles, be it through secret credit card debt or gambling addictions or money lost on sham investments. What’s interesting, though, is that rarely in my four years as an advice columnist have I gotten letters from the person who screwed up. Instead, they lash out at their partner when their secret is exposed. Then, it’s the partner who writes me asking how to fix things.

I think your first step here needs to be talking to a divorce attorney. That doesn’t mean you need to decide whether you’re ending your marriage tomorrow. But at least you’re taking the first step toward an exit plan should you decide this relationship isn’t salvageable.

That may sound scary given that your husband is the breadwinner. But since he earns 10 times more than you, he may be ordered to pay alimony if you divorced. In some cases, it’s possible for a lower-earning spouse to petition the court and ask that the spouse with greater resources be required to pay their legal expenses. Again, it’s vital to discuss these matters with an attorney.

Unfortunately, your husband’s financial mistakes are going to be difficult to recover from. His 80% loss could easily become a 100% loss. Penny stocks are often cheap because they’re worthless. Many of these businesses have extraordinarily shaky finances. Penny stocks are also a frequent target of scammers.

Since your husband is earning about $200,000 a year, he may be able to replace some of the money he’s lost. But you’re limited on how much you can contribute to retirement accounts each year. So even if he could magically make the $300,000 he lost reappear, he wouldn’t be able to invest most of that money in a tax-advantaged account.

The bigger problem, of course, is that your husband has put your retirement in jeopardy and doesn’t seem a bit sorry. He’s given you no reason to believe this won’t happen again.

So even if you’re not ready to decide whether you have a future with him just yet, is there anything you can do to buy yourself more financial security? If you’re working only part time, would it be possible to go full time or find a second job? You also need retirement savings of your own that your husband doesn’t control. If you don’t already have an individual retirement account (IRA), you can set one up at any major brokerage.

Often, people mistakenly believe that their partner is savvier with money just because they earn more. But you can absolutely have a big paycheck yet still be foolish about money.

If you’re willing to stay married to your husband, you need to put some conditions in place. For starters, you need to start regularly meeting together with a financial planner who can help you both get back on track. If you have questions about how your money is invested, direct your questions to the planner since you can’t take your husband’s word for it.

To recover from your husband’s mistakes, you both need total financial transparency. That means you both should know about any bank accounts, credit cards or investments the other one has. You should be able to ask questions about the finances without your husband getting angry.

But it doesn’t sound like your husband is capable of honest communication at this point. So unless you think he’s willing to change, I really hope you’ll take the first step and contact a lawyer.

Once you finally get your finances in order, you want to keep them that way. Here are several moves to make now.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].