Taking money out of your 401k during divorce can be tempting. To rely on the additional financial support system of your 401(k) when you are getting divorced may be comforting. It is also equally important, however, that you understand both sides of doing this to determine whether it suits your individual situation.
Funds Saved During the Marriage
If the 401(k) plan was accumulated during the marriage, it could be considered marital property, and most of the time, it is. The funds inside a 401(k) accumulated over the course of a marriage will usually be divided in accordance with Arizona family laws. Arizona is a community property state which means that these funds are likely to be divided equally between the spouses. If funds are drawn during or before the divorce, you may be concerned that your spouse has minimized the account value for the purposes of division between two parties.
If your divorce settlement ultimately states that retirement funds will be divided, a court has to enter a Qualified Domestic Relations Order (also known as a “QDRO”). This allows funds inside an account to be drawn and separated without a penalty.
You should not withdraw funds from your 401(k) in the middle of a divorce without first consulting with your tax specialist and your Arizona family lawyer as there may be both financial penalties and penalties from the Court.The reason for this is that there could be consequences that you do not realize at the time that can end up causing big problems down the road. It is better to wait and consult with professionals before you go ahead and make this move. You may actually be violating a pre-existing Court order, called the Preliminary Injunction, by withdrawing community funds. That is why it is imperative that you consult with someone who understands what you are hoping to achieve and can give you advice about whether it’s really a good idea to take funds out of the 401(k).
Speaking with an Arizona family lawyer can be especially helpful during this difficult time, because it can help give you some direction about whether or not it’s a good idea for you to take funds from a 401(k) as well as how you should handle a situation where you suspect that your spouse is removing funds. There are many important financial questions you likely have during divorce, and you need an attorney you can trust during a delicate and challenging time.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Taking Money out of Your 401(k) During Divorce, or other family law issues, please feel free to contact Barry C. Dickerson at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools, and municipalities in Mesa and the Phoenix/East Valley.