bought spouse out of home with money from 401k

[rock5555]

What is the name of your state (only U.S. law)? Tn

In Marriage/dissolution agreement I agreed to "pay the sum of $8000" to buy her out of house. Paid $2000 cash and had another $6000 assigned to her from my 401k through a qdro. Because she chose not to roll that money into a 401k she had to pay federal 20% penalty. Now she thinks I should pay her that 20%...I paid the sum of $8000 I agreed to in the divorce...I don't think I owe it....What's the legal answer?

 

[mistoffolees]

What is the name of your state (only U.S. law)? Tn

In Marriage/dissolution agreement I agreed to "pay the sum of $8000" to buy her out of house. Paid $2000 cash and had another $6000 assigned to her from my 401k through a qdro. Because she chose not to roll that money into a 401k she had to pay federal 20% penalty. Now she thinks I should pay her that 20%...I paid the sum of $8000 I agreed to in the divorce...I don't think I owe it....What's the legal answer?

I think you owe it. When you give someone $6 K in pre-tax money (such as your 401K), you're not giving them $6 K. They actually get $6 K less the taxes on the money. Since you're the one being ordered to pay her $8 K, you should be responsible for the taxes.

This is a good reason why pre-tax assets and post-tax assets should never be mixed. In my decree, for example, we negotiated completely separate property division for the pre-tax and post-tax assets to equalize them separately. Trying to pay an after tax debt with 401K money creates a mess.

 

[MFinancier]

I think you owe it. When you give someone $6 K in pre-tax money (such as your 401K), you're not giving them $6 K. They actually get $6 K less the taxes on the money. Since you're the one being ordered to pay her $8 K, you should be responsible for the taxes.


Unless the QDRO OP mentioned was specifically drawn up to address the transfer of 6K in 401K money that she agreed to roll over as part of the 8K payment! At least he didn't give her a diamond appraised at twice the value

 

[LdiJ]

What is the name of your state (only U.S. law)? Tn

In Marriage/dissolution agreement I agreed to "pay the sum of $8000" to buy her out of house. Paid $2000 cash and had another $6000 assigned to her from my 401k through a qdro. Because she chose not to roll that money into a 401k she had to pay federal 20% penalty. Now she thinks I should pay her that 20%...I paid the sum of $8000 I agreed to in the divorce...I don't think I owe it....What's the legal answer?

I agree with the other two posters, I think that you owe her the tax.

 

[wileybunch]

In Marriage/dissolution agreement I agreed to "pay the sum of $8000" to buy her out of house. Paid $2000 cash and had another $6000 assigned to her from my 401k through a qdro.

Was assigning her $6K from your 401k via a QDRO part of the actual order? Or was that your idea of how to fulfill part of the requirement to pay her a sum of $8k? If the latter, you haven't paid her the sum of $8k yet if you gave her $ with tax strings attached so the tax burden would be yours to cover to get her back to the full $8k.