Home Equity and 401 Division

[Swt9]

My husband and I live in Texas and have been married 15 years. He wants a divorce says he will split everything 50/50 no a court battle. I don't want to remain in Texas but he does and he wants to keep the house, which is fine by me as long as I can afford to move. He says he will buy-out my share. I asked him how since we have little savings other than the 401k.
He said -
"We can divide the 401k and your half of the home equity can come out of my half of the 401k." He knows if we divorce I will cash-out everything to reboot my life somewhere else, and says I'll get the home equity out in cash at the same time --- from the 401k. After the divorce is finalized. Does that sound right?

He's always referred to the 401k as 'his' so I'm surprised and I hate to say it, suspicious he would so willingly give me half. And maybe I'm overestimating how much equity we are talking about, and it's not a big deal, but when I asked whether it was wise for him to give up any more than half of his retirement, he got mad and said it's the only way he can afford to buy me out of the house, that he has time to rebuild his retirement, the property value is going up, the place will be paid off soon, his SS will be good - and basically he just wants me gone. :/

So... I don't know what to think. I don't want to poke the bear with anymore questions right now, but I don't know if this is legal, reasonable, or common place. What happens if I move out and the divorce goes thru, but the QDRO is denied or doesn't get 'qualified' - however you say that. I don't want to find myself divorced, homeless, and broke to boot. I've been reading but still can't figure out who has final say on the division of the 401k; my husband and I, the judge/court system, or the plan provider -per their own rules?

I doubt our situation is so unusual. How do most people handle this? He said it's the 'only way' he can afford to buy me out, but aren't there other options that are better for us both?

Here's a few more details:
1) The home is a mobile home we bought 10 yrs ago on a 15 yr mortgage, we also bought the land at the same time, on a seperate 12 yr note.
2) The 401k has always been thru his employer. It was ING until last year when it changed to Voya - from what I read, it does allow for division.
3) We had been living together for 3 yrs before he began contributing to the 401k. This was 2 yrs BEFORE we were married legally.
4) I am 54 and haven't worked outside the home in 12 years.

I've not talked to a lawyer yet but will begin my search in earnest over next few days.

I would really appreciate any thoughts/advice. Thank you.

 

[LdiJ]

My husband and I live in Texas and have been married 15 years. He wants a divorce says he will split everything 50/50 no a court battle. I don't want to remain in Texas but he does and he wants to keep the house, which is fine by me as long as I can afford to move. He says he will buy-out my share. I asked him how since we have little savings other than the 401k.
He said -
"We can divide the 401k and your half of the home equity can come out of my half of the 401k." He knows if we divorce I will cash-out everything to reboot my life somewhere else, and says I'll get the home equity out in cash at the same time --- from the 401k. After the divorce is finalized. Does that sound right?

He's always referred to the 401k as 'his' so I'm surprised and I hate to say it, suspicious he would so willingly give me half. And maybe I'm overestimating how much equity we are talking about, and it's not a big deal, but when I asked whether it was wise for him to give up any more than half of his retirement, he got mad and said it's the only way he can afford to buy me out of the house, that he has time to rebuild his retirement, the property value is going up, the place will be paid off soon, his SS will be good - and basically he just wants me gone. :/

So... I don't know what to think. I don't want to poke the bear with anymore questions right now, but I don't know if this is legal, reasonable, or common place. What happens if I move out and the divorce goes thru, but the QDRO is denied or doesn't get 'qualified' - however you say that. I don't want to find myself divorced, homeless, and broke to boot. I've been reading but still can't figure out who has final say on the division of the 401k; my husband and I, the judge/court system, or the plan provider -per their own rules?

I doubt our situation is so unusual. How do most people handle this? He said it's the 'only way' he can afford to buy me out, but aren't there other options that are better for us both?

Here's a few more details:
1) The home is a mobile home we bought 10 yrs ago on a 15 yr mortgage, we also bought the land at the same time, on a seperate 12 yr note.
2) The 401k has always been thru his employer. It was ING until last year when it changed to Voya - from what I read, it does allow for division.
3) We had been living together for 3 yrs before he began contributing to the 401k. This was 2 yrs BEFORE we were married legally.
4) I am 54 and haven't worked outside the home in 12 years.

I've not talked to a lawyer yet but will begin my search in earnest over next few days.

I would really appreciate any thoughts/advice. Thank you.

What he is proposing is actually not that uncommon. However, if I were in your shoes I would require him to take a distribution or loan from the 401k himself, to cover your half of the equity in the house, and then roll over your half of the 401k into an IRA of your own to start with. Why? When you cash out the 401k money you will have to pay taxes on it. However, you should not have to pay taxes on your share of the home equity money, he should have to pay taxes on that. If you have your half rolled into the 401k then you may not need to withdraw it all in the same year, and therefore you can spread out the tax burden.

He also has the option if refinancing the home to pull out enough equity to buy you out and to get you off the loan, and then dividing the 401k normally.

 

[FlyingRon]

Division just allows you to leave the account with that institution. Even if they don't allow it, a QDRO allows a penalty-free distribution (either for cash, which would be taxable as normal income) or roll over into an IRA. The plan does't have to like it.

L's strategy works if there's sufficient asset in the 401K to cover the indebtedness on the house (after whatever share the QDRO takes) and the plan actually allows such (they're not obliged to).

 

[STEPHAN]

Is there a mortgage on the house? Make sure you get off that mortgage (and not only off the deed).

 

[stealth2]

How much $$ are you actually talking about?

 

[cbg]

L's plan also depends on whether the plan allows for loans - they don't always. This would not qualify for a hardship withdrawal and if he is under 59 1/2 and still employed by the employer sponsoring the 401(k) he cannot take any other kind of distribution. A loan, if permitted by the plan document, would be the only option other than a QDRO.

 

[Swt9]

Thanks for the responses. Yes he is still working for the same employer and under 59 but I think he already has a loan out due to be payed off later this year which I hadn't thought about, or the taxes on the equity... The last time I saw how much we still owed it was a couple of years ago about 20k I think, it's 5yrs to pay off, the land in 2. Would it be a bad idea to refinace? The tax man says the home/land is worth $80. The retirement acct is worth $180k.
I thought this was the only opportunity I had to withdraw any of it without a penalty before I turn 59.

 

[cbg]

The plan document may or may not permit a 2nd loan. Not all plans allow loans at all; those that do sometimes limit how many loans can be taken. It *may* be that a he could still take a second loan, but it also *may* be that he cannot take a second loan until the first one is paid off. He would have to look at the plan document to be certain.