Can I Withdraw My 401(k) Before Filing for Divorce?

By Rob Jennings J.D.

Although a 401(k) may constitute marital property in your divorce, it remains under your control, giving you the option of withdrawing the funds if you choose to do so. Just because you can do it, however, doesn't mean you should. Before making any withdrawals, understand how courts treat 401(k) funds and what penalties you could face.

Marital Property

Although state law on marital property division varies, 401(k) contributions made during marriage -- and any increases in value on those contributions--generally constitute marital property in a divorce. This means that the judge in your case can divide those funds -- even if you're the one who earned them. In some jurisdictions, the judge can award a portion or your entire 401(k) to your spouse. Depending upon the circumstances of your withdrawals, your actions may be viewed as attempts to hide marital funds from both your spouse and the judge.

Withdrawals

When you withdraw 401(k) funds, the court can treat you as having taken an advance on your share of marital property, meaning you will likely have to reimburse your spouse with other funds. Depending upon your reasons for making the withdrawals, the court may saddle you with a pre-tax, pre-penalty valuation of the funds. Since 401(k) withdrawals are taxed at your ordinary income rate and carry penalties if done early, you could have to compensate your spouse with more value than you yourself received.

Divorce is never easy, but we can help. Learn More

Reasons for Withdrawal

If you withdraw funds due to financial hardship, the court may not require you to reimburse the other spouse -- depending upon what you did with the money. Paying down marital debt or preventing the repossession of marital property can benefit both parties. If your spouse has a child or spousal support obligation that he ignores, you may get away with drawing down your 401(k) on the grounds that you may not have had to do it had your spouse paid you like he should have.

Alternatives to Withdrawal

Some individuals withdraw funds from their 401(k) to "pay off" their spouse, which triggers the imposition of taxes and early withdrawal penalties. These expenses are usually unnecessary; when you need to divide a 401(k) because of a divorce, a qualified domestic relations order (QDRO) can allow you to transfer funds to your spouse without paying those taxes and penalties. Instead of pulling funds out to pay down marital debt, consider a joint bankruptcy. Under current law, you can obtain a discharge of some or all of your debt while keeping your retirement assets intact.

Protection of Other Spouse

State law can protect the other spouse in a divorce where there exists a possibility that the 401(k) owner may withdraw the funds. The divorce summons may contain a restraining order preventing the served spouse from withdrawing or selling marital assets. Parties can also ask the court for temporary restraining orders to prevent the disappearance of retirement funds during the divorce process. These restraining orders can be served on the 401(k) sponsor so that if the other spouse tries to make withdrawals in violation of the order, the account can be frozen.

Divorce is never easy, but we can help. Learn More
How to Divide Deferred Compensation Accounts in a Divorce

References

Related articles

How Is a Roth IRA Divided in a Divorce?

Dividing most retirement accounts in a divorce can be a major headache, but Roth IRAs are an exception. Unlike defined benefit plans, Roth IRAs don’t pay out in monthly increments from your employer when you retire, so calculating a monthly payout to your spouse is not required. You contribute to a Roth IRA on your own each year with marital income, up to a certain limit set by the Internal Revenue Service. If you divorce, that part of your Roth IRA that was financed with marital income is apportioned between you and your spouse.

Are Savings Accounts Frozen During a Divorce in North Carolina?

As a spouse contemplating divorce in North Carolina, you are likely consumed by the necessary issues that must be resolved -- such as property division, alimony and custody -- before a court will terminate your marriage. However, even before addressing these matters, you may need to take steps to protect marital assets, like money held in savings accounts, or your assets will be at risk if your spouse depletes or siphons off the funds before or during the divorce. Freezing your bank accounts is one way to keep this from happening.

If Your Spouse Cleans Out Your Joint Account Before a Divorce, Can You Legally Get That Money Back?

When two people hold a joint account, they each have an equal right to its balance, regardless of whether or not they're married. The situation changes, however, when a married couple separates. The divorce process gives rise to property rights on the part of each spouse as to all items considered marital property.

Get Divorced Online

Related articles

Proving Money Is Inherited

Each state has its own laws regarding the division of marital property in a divorce. Community property states, which ...

Massachusetts Laws on Divorce & 401(k)s

If you and your spouse divorce, not only do you have to separate your lives, you also must separate the property you ...

401(k) Rights in a Divorce

One of the most difficult aspects of property division in a divorce case concerns the sharing of retirement assets. ...

Can a Wife Take Assets in a Divorce That Were Owned by the Husband Prior to the Marriage in Ohio?

Ohio courts can divide all types of property in your divorce -- real estate, household furnishings, vehicles and bank ...

Browse by category
Ready to Begin? GET STARTED