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How a 401(k) cash out can help in a divorce

On Behalf of | Sep 17, 2021 | Divorce

When a California married couple decides to part ways, there are typically numerous financial issues that must be resolved in order to achieve a fair settlement. In many cases, a divorce might create a need for a spouse to start all over, including finding employment that generates enough income to pay rent or a down payment on a new home. There are several things to know about the 401k program that may be helpful during property division proceedings.

Learn about a Qualified Domestic Relations Order (QDRO) ahead of time

There is a specific document that is commonly referred to as QDRO, which is needed in certain circumstances to divide 401k benefits or a retirement account in a divorce. This is a special order that is sent to a plan’s administrator so that a non-employee spouse receiving a portion of his or her ex’s benefits as part of a property settlement does not have to pay a penalty fee if he or she is under age 59 ½ and is taking an early cash out. Many people use such funds to help them start over in life after divorce.

Spouses are required to give full disclosure in a divorce

Heading into property division proceedings can be stressful, especially if a spouse is concerned that his or her ex will try to hide assets. Both spouses must fully disclose any and all assets and liabilities. If a spouse were to try to hide a 401k account, it would amount to perjury, which is a crime.

A hardship withdrawal also helps avoid a penalty fee

If the spouse with a 401k account is ordered to use funds from the account to provide financial assistance to his or her ex or children, a “hardship distribution” allowance would enable him or her to do so without having to pay any applicable penalty fee. Consulting with an experienced family law attorney ahead of time is the easiest way for a concerned spouse to protect financial interests in a divorce. Many issues regarding retirement accounts or 401k benefits are complex, and having an attorney who is well-versed in the legal aspects of a divorce by one’s side in court can make the process less stressful.