Ex wants half of 401k contributions made post-divorce

[single317dad]

Why doesn't he take a loan for the entire amount of the 401k account? She would then get 50% of nothing. When the QDRO is executed you can bet she will determine what 50% of the account was worth BEFORE the loan.

I don't believe the loan trick is going to fly.

I agree with Bali.

I think I might be ill.

 

[cbg]

He probably can't take a loan for the entire amount. Many if not most plan documents will not let you take a loan for more than 50% of the balance. Ours sure won't.

 

[Bali Hai]

He probably can't take a loan for the entire amount. Many if not most plan documents will not let you take a loan for more than 50% of the balance. Ours sure won't.

I don't think any plan would allow a loan for the full balance, in a very extreme hardship case maybe. People with a hefty portfolio might take all the money and skip the country to avoid paying the tax and the IRS is too smart for that to happen. My plan doesn't allow for loans at all unless a qualified hardship exists.

I asked the question about taking a loan for the full 401k amount facetiously playing the devil's advocate.

 

[cbg]

I wouldn't be at all surprised, Bali.

 

[gator1]

.... the QDRO is executed you can bet she will determine what 50% of the account was worth BEFORE the loan.

I don't believe the loan trick is going to fly.

My plan allows up to 50% or $50k withdrawal, whichever is higher, for any reason, subject to some limitations. Matching is vested immediately.

My plan lists CURRENT balance and LOAN balance separately. Current balance does not include loan balance. During my divorce I took out a sizable loan to cover divorce associated expenses. When time came to split 401k, her attorney asked for CURRENT balance, which she got, and the 401k was divided based upon that amount only.

The current VALUE does not include loans. Because it is not a given a loan will be repaid. Changing jobs will often allow one to treat the loan as a withdrawal if they wish, though they would owe taxes and penalties.

If the order states division is to be valued at "date of disbursement" or "date of divorce", the plain letter of that is clear. It is not "trickery" or dishonest to work within that. In my case I gave the correct value of the plan on date of divorce, which is all they asked for. But even if the loan was challenged, the money was used in compliance with the standard restraining order against squandering or concealing marital assets. And divorces cost money and deplete community property. The spouse vacating the marital residence has higher upfront costs of living expenses setting up a new household. Not any different than the moving spouse using more than half the joint bank account for initial living expenses. It would have been fraudulent had I simply withdrawn the money and stashed it.

In OP's case, he would be doing nothing wrong by withdrawing only his post divorce contributions. It would legally be FOOLISH to do otherwise. If he leaves it in there, the PLAIN LETTER of the order guarantees that HALF of whatever he leaves in there is hers. Withdrawing it leaves a judge room to allow the withdrawal if that is challenged. Should he withdraw anything more than that, it would cross the line and leave him open to trouble.

 

[Bali Hai]

My plan allows up to 50% or $50k withdrawal, whichever is higher, for any reason, subject to some limitations. Matching is vested immediately.

My plan lists CURRENT balance and LOAN balance separately. Current balance does not include loan balance. During my divorce I took out a sizable loan to cover divorce associated expenses. When time came to split 401k, her attorney asked for CURRENT balance, which she got, and the 401k was divided based upon that amount only.

The current VALUE does not include loans. Because it is not a given a loan will be repaid. Changing jobs will often allow one to treat the loan as a withdrawal if they wish, though they would owe taxes and penalties.

If the order states division is to be valued at "date of disbursement" or "date of divorce", the plain letter of that is clear. It is not "trickery" or dishonest to work within that. In my case I gave the correct value of the plan on date of divorce, which is all they asked for. But even if the loan was challenged, the money was used in compliance with the standard restraining order against squandering or concealing marital assets. And divorces cost money and deplete community property. The spouse vacating the marital residence has higher upfront costs of living expenses setting up a new household. Not any different than the moving spouse using more than half the joint bank account for initial living expenses. It would have been fraudulent had I simply withdrawn the money and stashed it.

In OP's case, he would be doing nothing wrong by withdrawing only his post divorce contributions. It would legally be FOOLISH to do otherwise. If he leaves it in there, the PLAIN LETTER of the order guarantees that HALF of whatever he leaves in there is hers. Withdrawing it leaves a judge room to allow the withdrawal if that is challenged. Should he withdraw anything more than that, it would cross the line and leave him open to trouble.

I understand what you're saying. I tend to see things black and white and in my view it amounts to needless game playing if a judge would allow the withdrawl and OP to keep his post divorce contributions, when that same judge would rule the account be split 50:50 if the withdrawl wasn't made. To me that is contradictory and I see no difference whether the money is in the account or not.

 

[tuffbrk]

It's actually too bad the OP made additional contributions. With that type of verbiage, his ex was on the hook not only for any investment gains after divorce but also any net losses. I would doublecheck the specific language of your decree. That is pretty loose language.

 

[Bali Hai]

It's actually too bad the OP made additional contributions. With that type of verbiage, his ex was on the hook not only for any investment gains after divorce but also any net losses. I would doublecheck the specific language of your decree. That is pretty loose language.

Any contributions made either by the employer or the OP post divorce should not be divided.

It's obvious who wrote the decree for the judge to sign.

The OP or anyone else should not be required to put their life on hold post divorce. QDRO's may take years to execute (especially if someone stands to gain something from the delay).

The OP has a defined time limt to make contributions to his 401k and shouldn't have to be worried about being swindled out of the money.

 

[gator1]

Bottom line is OP put more money than he should have in his post-divorce 401k before it was divided.

There is NOTHING in the order to suggest he cannot simply withdraw that excess in the form of a loan IF his plan allows for that.

The order is clear and unambiguous that ex is entitled to HALF of the 401k balance "on the date it is disbursed".

If he FAILS to withdraw any excess, half of that will belong to his ex and the court can do nothing about that. And there would be no grounds for an appeal .

If he DOES withdraw it, and ex balks and tries to litigate, the court can then determine if he violated the letter of the order and if she is then entitled to half his post divorce 401k balance. IF the court were to order the post divorce fund split, there would be good grounds for an appeal.

 

[Bali Hai]

Bottom line is OP put more money than he should have in his post-divorce 401k before it was divided.

There is NOTHING in the order to suggest he cannot simply withdraw that excess in the form of a loan IF his plan allows for that.

The order is clear and unambiguous that ex is entitled to HALF of the 401k balance "on the date it is disbursed".

If he FAILS to withdraw any excess, half of that will belong to his ex and the court can do nothing about that. And there would be no grounds for an appeal .

If he DOES withdraw it, and ex balks and tries to litigate, the court can then determine if he violated the letter of the order and if she is then entitled to half his post divorce 401k balance. IF the court were to order the post divorce fund split, there would be good grounds for an appeal.

I do not agree that "OP put more money than he should have in his post-divorce 401k before it was divided". OP has not intimated that time frame. It could have been four weeks or four years.

I do agree with the rest of your post. However, the "grounds for appeal" will be very expensive, and, that is exactly what keeps the justice system financed.