401k split

[carl ford]

ohio
my wife and i are getting divorced. She agrees that i am entitled to half of her 401k but she says I cant have it untill the time she retires. Is there anything stopping her from acsessing that money now?

 

[Bali Hai]

ohio
my wife and i are getting divorced. She agrees that i am entitled to half of her 401k but she says I cant have it untill the time she retires.

Unless there is an unusual restriction put on her 401k, the account will be split via QDRO and there will be an account set up in your name under the same restrictions as the original.

Is there anything stopping her from acsessing that money now?

Some plans won't allow access unless retirement, 59 1/2 or hardship is proven.

If she takes a distribution, nail her for dissipation of marital assets.

 

[LdiJ]

ohio
my wife and i are getting divorced. She agrees that i am entitled to half of her 401k but she says I cant have it untill the time she retires. Is there anything stopping her from acsessing that money now?

I agree with Bali, unless there is something really unusual about the account, there is no reason that it cannot be split now, via a QDRO.

 

[tuffbrk]

Word to the wise - you're divorcing - it's not wise to believe anything said by your STBX. Ask your attorney. Or as you did this morning - ask the forum.

Have a happy!

 

[MFinancier]

ohio
my wife and i are getting divorced. She agrees that i am entitled to half of her 401k but she says I cant have it untill the time she retires. Is there anything stopping her from acsessing that money now?

Get a copy of the SPD (Summary Plan Description) it will tell you whether or not the plan has hardship withdrawal provisions or loans available for participants. If you have filed for divorce you could call the administrator and try to get them to flag this account...if not you could get a court order restraining her from encumbering any marital assets. If you haven't filed for divorce...anything she has done with marital assets will be traced and accounted for. The terms of the SPD are important in deciding what option you choose to split these retirement funds...and a proper QDRO will be necessary. Generally you have three options...take a lump sum pursuant to the divorce and pay the ordinary taxes (no 10% penalty even if your under 59 1/2), title your portion of the 401k with her company in your name, or roll it over into your own IRA account. If you roll it over into your own IRA account make sure it is a trustee to trustee transfer. If you take the money into a taxable account you may have a 20% witholding tax taken out which you won't get back until you file your taxes...and you'll have to front that 20% somehow in order to properly roll over the full amount into an IRA account within 60 days. If she has company stock in her 401K I highly advise you consult a financial professional. Special tax rules apply for the tax basis of this stock, and you may lose this benefit if you roll it over into a IRA. You can also start withdrawals in "substantially equal payments" under sec 72t at age 55. Lastly...be careful when valuing this 401k if premarital contributions were made. The formula is a little hairy. Good Luck!

 

[thedoctorisin]

ohio
my wife and i are getting divorced. She agrees that i am entitled to half of her 401k but she says I cant have it untill the time she retires. Is there anything stopping her from acsessing that money now?

My take on the OP's question is not that he is worried that his wife will drain the 401k prior to the divorce, but instead the OP wants the wife to take out his half of the 401k to give to him now. If so, then the QDRO is still the answer as to how the 401k should be split.

Also, look out for loans against the 401k. Those are often easier to obtain than distributions.

 

[MFinancier]

One other point I'd like to make. Defined contribution plans like 401k's are relatively easy to value...particularly if there were no premarital contributions...and determining a suitable after tax valuation for division is a lot cheaper and easier than a QDRO. If at all possible I would recommend considering an offset against other marital assets (assuming they are available). Believe it or not...I've seen people go to the trouble of using a QDRO to split retirement accounts because they are either hung up on splitting everything literally or they assume they are getting some additional benefit...without doing the necessary financial analysis.

 

[Bali Hai]

Get a copy of the SPD (Summary Plan Description) it will tell you whether or not the plan has hardship withdrawal provisions or loans available for participants. If you have filed for divorce you could call the administrator and try to get them to flag this account...if not you could get a court order restraining her from encumbering any marital assets. If you haven't filed for divorce...anything she has done with marital assets will be traced and accounted for. The terms of the SPD are important in deciding what option you choose to split these retirement funds...and a proper QDRO will be necessary. Generally you have three options...take a lump sum pursuant to the divorce and pay the ordinary taxes (no 10% penalty even if your under 59 1/2), title your portion of the 401k with her company in your name, or roll it over into your own IRA account. If you roll it over into your own IRA account make sure it is a trustee to trustee transfer. If you take the money into a taxable account you may have a 20% witholding tax taken out which you won't get back until you file your taxes...and you'll have to front that 20% somehow in order to properly roll over the full amount into an IRA account within 60 days. If she has company stock in her 401K I highly advise you consult a financial professional. Special tax rules apply for the tax basis of this stock, and you may lose this benefit if you roll it over into a IRA. You can also start withdrawals in "substantially equal payments" under sec 72t at age 55. Lastly...be careful when valuing this 401k if premarital contributions were made. The formula is a little hairy. Good Luck!

I assume this benefit is also uniformly applied, and the account owner can take a lump sum distribution with no tax penalty as a result of the QDRO?

 

[Bali Hai]

One other point I'd like to make. Defined contribution plans like 401k's are relatively easy to value...particularly if there were no premarital contributions...and determining a suitable after tax valuation for division is a lot cheaper and easier than a QDRO. If at all possible I would recommend considering an offset against other marital assets (assuming they are available). Believe it or not...I've seen people go to the trouble of using a QDRO to split retirement accounts because they are either hung up on splitting everything literally or they assume they are getting some additional benefit...without doing the necessary financial analysis.

I think that is great advice. For example the house may have $200k equity and the 401k may be worth $200k. An easy fix would be to give up his share of the 401k ($100k) and take her share of equity ($100k) and own the house.

 

[MFinancier]

I assume this benefit is also uniformly applied, and the account owner can take a lump sum distribution with no tax penalty as a result of the QDRO?

I know where this is going but it doesn't have a happy ending. As far as I know it's only available to the "alternate payee" of an ERISA plan.... Primarily because of the high number and acceptance of 401k's out there, the assets they represent AND the use of these assets to pay child support and maintenance....not just division of assets. But hey...I suppose if you both had 401K's you could split and name each other as an alternate payee...

 

[mistoffolees]

I think that is great advice. For example the house may have $200k equity and the 401k may be worth $200k. An easy fix would be to give up his share of the 401k ($100k) and take her share of equity ($100k) and own the house.

Bad advice.

The 401k is pretax income - and you still owe tax on it when you eventually cash it in. The house is after tax income and is worth more.

In order to offset pre-tax and after-tax assets, you need to estimate the tax bracket (which may be nearly impossible because who knows what the tax rates will be when cashed in).

I strongly recommend that pre-tax and after-tax equity be separately offset. You don't need to split everything down the middle, but pre-tax money should only be offset with other pre-tax money.

 

[Bali Hai]

I know where this is going but it doesn't have a happy ending. As far as I know it's only available to the "alternate payee" of an ERISA plan.... Primarily because of the high number and acceptance of 401k's out there, the assets they represent AND the use of these assets to pay child support and maintenance....not just division of assets. But hey...I suppose if you both had 401K's you could split and name each other as an alternate payee...

I had a feeling that was the case.

Papa works his butt off for 30 years putting money into his 401k nest egg. Mama wants her half NOW and divorces Papa to get the money tax penalty free.

Papa needs to take money out of the 401k to pay his divorce lawyer and gets whacked with the penalty!!

I would like to meet the idiots that make these rules!!

 

[Bali Hai]

Bad advice.

The 401k is pretax income - and you still owe tax on it when you eventually cash it in. The house is after tax income and is worth more.

In order to offset pre-tax and after-tax assets, you need to estimate the tax bracket (which may be nearly impossible because who knows what the tax rates will be when cashed in).

I strongly recommend that pre-tax and after-tax equity be separately offset. You don't need to split everything down the middle, but pre-tax money should only be offset with other pre-tax money.

Oh my gosh, I never thought of it that way.

Do you suppose that's why my ex and her lawyer wanted me to trade my equity in the house to them for an equal dollar amount of my 401k that would have been her share???

 

[mistoffolees]

Oh my gosh, I never thought of it that way.

Do you suppose that's why my ex and her lawyer wanted me to trade my equity in the house to them for an equal dollar amount of my 401k that would have been her share???

Beats me. I don't read minds. If you gave her a certain dollar in home equity and she gave you the same dollars in 401k equity, it would certainly have been to her benefit, though.

 

[StampGirl]

I think that is great advice. For example the house may have $200k equity and the 401k may be worth $200k. An easy fix would be to give up his share of the 401k ($100k) and take her share of equity ($100k) and own the house.

Thats how my ex and I did our settlement. He kept the 401K, and I kept mine and the condo. It wasn't a 50-50 split, but I didn't want to squawk over the money technically he owed me to make it even.