As you and your soon-to-be ex-spouse work your way through your property division proceedings, one of the more complex assets you are both going to be forced to deal with is dividing up their 401k. Contributions made to an employer-sponsored 401k account during your marriage are made with your ex-spouse’s income. Thus, just as their income is considered a marital asset, so too are those contributions (at least those made during your marriage). While you may be entitled to an equitable share of those contributions, you are also likely aware that there are tax penalties that are assessed if you withdraw funds from a 401k too early.
You can roll your share of those contributions into your own retirement account (or simply wait until your ex-spouse reaches the age of retirement to withdraw your share), yet what if you need money now? Say that your ex-spouse was the primary income earner in your home, and you know need funds to help pay for schooling so you can get the necessary skills to secure gainful employment, or to buy a new home? Can you withdraw your portion of your ex-spouse’s 401k contributions without having to pay a penalty?
According to information shared by CNBC, you can. If the court issues a qualified domestic relations order naming you as an alternate payee on your ex-spouse’s retirement account, you can remove funds without incurring the regular tax penalty (your intention to withdraw the funds now must be stated in the QDRO). You will, however, have to pay income tax on your disbursement. Plus, withdrawing the funds now costs you whatever interest they may earn in the coming years. Therefore, this is not a decision that should be made without first giving it a lot of thought.