401k distribution

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

How are uneven 401k plans normally split up in a divorce? My wife has approximately $200k in her plan and I have $40k in mine. All of that was contributed after our marriage of 20 years began.

jbfan2007 said:

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

How are uneven 401k plans normally split up in a divorce? My wife has approximately $200k in her plan and I have $40k in mine. All of that was contributed after our marriage of 20 years began.

Click to expand...

There is a lot of flexibility, but the easiest method would be for her to transfer $80 K via QDRO to a new IRA in your name. Make sure you use a QDRO, though, or you could end up paying a ton of taxes and penalties (technically, it is possible to do it with a cash distribution, but it's more complicated and you have to have a lot of spare cash lying around to avoid tax penalties, so just use the QDRO).

That, of course, assumes that all of the non-retirement assets are split separately (which is the best way). If your stbx proposes offsetting other assets with the 401K, make sure you consider the tax consequences. $1 in a retirement account is usually worth less than $1 in cash assets (because you still have to pay taxes on most retirement accounts). That's why it's better to divide pre-tax and after-tax assets separately.

mistoffolees said:

There is a lot of flexibility, but the easiest method would be for her to transfer $80 K via QDRO to a new IRA in your name. Make sure you use a QDRO, though, or you could end up paying a ton of taxes and penalties (technically, it is possible to do it with a cash distribution, but it's more complicated and you have to have a lot of spare cash lying around to avoid tax penalties, so just use the QDRO).

That, of course, assumes that all of the non-retirement assets are split separately (which is the best way). If your stbx proposes offsetting other assets with the 401K, make sure you consider the tax consequences. $1 in a retirement account is usually worth less than $1 in cash assets (because you still have to pay taxes on most retirement accounts). That's why it's better to divide pre-tax and after-tax assets separately.

Click to expand...

Thanks for the information as that is helpful. But, my question was not phrased well as it could be taken two ways. What I meant to ask is are these normally split 50/50 in an example like mine, or is there some formula that is used. My wife said a 50/50 is unreasonable as she has had the higher income the whole time, so she thinks she is entitled to a larger share. She mentioned a 70/30 split, which I don't agree with.

jbfan2007 said:

Thanks for the information as that is helpful. But, my question was not phrased well as it could be taken two ways. What I meant to ask is are these normally split 50/50 in an example like mine, or is there some formula that is used. My wife said a 50/50 is unreasonable as she has had the higher income the whole time, so she thinks she is entitled to a larger share. She mentioned a 70/30 split, which I don't agree with.

Click to expand...

You will each be entitled to 50% of marital assets. If all of the money was put into the 401K accounts during your marriage, it's all marital, so you get 50%. If, OTOH, some of it was pre-marital, then only the marital portion is divided.

Tell your wife to jump in a lake. It's a martial asset even if she earned more of it than you. My wife didn't work at all during most of our marriage and she still got half. That's just the way the system works.

mistoffolees said:

You will each be entitled to 50% of marital assets. If all of the money was put into the 401K accounts during your marriage, it's all marital, so you get 50%. If, OTOH, some of it was pre-marital, then only the marital portion is divided.

Tell your wife to jump in a lake. It's a martial asset even if she earned more of it than you. My wife didn't work at all during most of our marriage and she still got half. That's just the way the system works.

Click to expand...

Thanks! I was considering compromising with her and proposing a 55/45 split, but it sounds like I would be cheating myself by doing that.

You each are entitled to 50% of what accrued during the marriage. She would be entitled to 50% of your 401k, and you, 50% of hers.

Combined, there are marital 401k funds totaling $240,000, so you should each have $120,000 when all is completed.

nextwife said:

You each are entitled to 50% of what accrued during the marriage. She would be entitled to 50% of your 401k, and you, 50% of hers.

Combined, there are marital 401k funds totaling $240,000, so you should each have $120,000 when all is completed.

Click to expand...

If all is marital, of course.

One thing to watch out for. MAKE SURE THE QDRO IS EXECUTED QUICKLY. It should be possible to do it in a couple of weeks - which minimizes the effect of changes in value over time. Any method of transferring the money entails some risk of gains or losses (or foregoing potential gains), so you want to minimize that. No matter which of the methods you use, the quicker it happens, the better.

One method is this: On the date that the 401Ks are valued and you are given a division, ask the court to order her to put your share into a money market or other safe investment to ensure that you get your share even if the market drops. In this case, you get a court order to transfer $80 K (or whatever the exact amount is) to you - and have her put $80 K into a money market or cash account. Then, have the QDRO written to transfer that money to you. If done that way, timing isn't as critical (although you lose some of the potential earnings when it's in your account).

Another way to do it is to ask for a percentage. That is, say hers is worth $200 K and the court decides that you are entitled to get $80 K. The QDRO can be written for you to get exactly 40% of her account. If the account drops, you get less. If it goes up, you get more.

Finally, you may get a QDRO which orders her to give you $80 K exactly (specifying the amount, not the percentage). If the account gains or drops, SHE is the one who loses. However, even this creates some risk for you. There are lots of cases here where the account has dropped and the person who held the account wants to go back to court to try to correct the 'injustice' - even though it was their own choice to leave the money in stocks. It is not likely that they'd win, but you could end up with legal expenses.

I prefer the first method, but WHATEVER YOU DO, make sure you understand the consequences both if the market increases and if it drops and make sure the court order is specific enough to minimize any misunderstandings. And, do everything in your power to make sure the QDRO is executed quickly.

One last thing - it may not be desirable to put it into your existing 401K account for a number of reasons. You might wish to open a new IRA account and have the money transferred into the new account. I would talk with an investment advisor who will be able to evaluate your specific situation to see if it makes sense to put it into the existing account or open a new one.

Thanks for all the helpful information from everyone. I told my wife what I found and that 50/50 is the way things are normally split up. She still thinks it isn't fair and wants me to "think in my heart the best way to split it up". We were considering a collaborative divorce, or a single attorney with a no contest divorce, but now I'm thinking the best bet will be to go to court and let a judge decide. I know it will be more expensive, but in some ways I'm not the "bad guy" since I won't decide how things are split. (We have two teenage kids, so I want to try and make it as easy on them as possible, but in this case I think letting a judge decide how to split things are might be the best way.)

jbfan2007 said:

Thanks for all the helpful information from everyone. I told my wife what I found and that 50/50 is the way things are normally split up.

Click to expand...

Close. That's 50% of MARITAL assets to each spouse. If some of one or both 401Ks was in place before the marriage, that amount needs to be deducted.

mistoffolees said:

Close. That's 50% of MARITAL assets to each spouse. If some of one or both 401Ks was in place before the marriage, that amount needs to be deducted.

Click to expand...

He has said at the outset that BOTH 401k's were in started DURING the marriage and BOTH are MARITAL. You got it????

jbfan2007 said:

Thanks for all the helpful information from everyone. I told my wife what I found and that 50/50 is the way things are normally split up. She still thinks it isn't fair and wants me to "think in my heart the best way to split it up".

Counter with, you don't think it's fair in your heart, and, tell her to stop pulling numbers out of her ass. Marital assets are split 50:50 as prescribed by the law that her sisters lobbied to get enacted.

We were considering a collaborative divorce, or a single attorney with a no contest divorce, but now I'm thinking the best bet will be to go to court and let a judge decide.

You need a lawyer. Don't let a jackass judge decide anything for you except alimony!!

I know it will be more expensive, but in some ways I'm not the "bad guy" since I won't decide how things are split. (We have two teenage kids, so I want to try and make it as easy on them as possible, but in this case I think letting a judge decide how to split things are might be the best way.)

Click to expand...

Come back and let us know how things work out for you.

Bali Hai said:

Come back and let us know how things work out for you.

Click to expand...

Hey Bali, You haven't mentioned that the wife is going to have to give the husband $80 K from her 401K. I thought you said that never happened (well, maybe you never said it, but you sure imply it all the time).

mistoffolees said:

Hey Bali, You haven't mentioned that the wife is going to have to give the husband $80 K from her 401K. I thought you said that never happened (well, maybe you never said it, but you sure imply it all the time).

Click to expand...

It sure as hell wouldn't happen with you as the presiding judge and court clerk LdiJ, without an expensive appeal!!

Bali Hai said:

It sure as hell wouldn't happen with you as the presiding judge and court clerk LdiJ, without an expensive appeal!!

Click to expand...

Bali, you are so full of it. When have I EVER said that marital assets/debts should not be split 50/50?

Any opinions on whether or not a collaborative divorce makes sense in my situation? It sounds like they would bring in a financial advisor to help on this matter, and then we wouldn't have a judge deciding how to split things up. I probably also need to make sure that a QDRO can be issued without a judge as well.