Cashing out your portion of your ex-spouse’s 401(k)

| Feb 23, 2021 | property division | 0 comments

When you were not the primary income earner in your marital home in Washington, your divorce (while helping to end your marital tension) will likely bring with it some concerns about your future. You may find yourself in an immediate need of funds to secure new housing or to pay for vocational training or to return to school. Without the income of your now-ex-spouse to rely on, securing those funds may be difficult.

Many come to us here at Nunn Vhan & Lang, P.L.L.C. believing that alimony payments can cover these costs. Yet the awarding of alimony in a divorce case is not automatic. Rather, a more reliable infusion of funds might come from your ex-spouse’s 401(k).

Dividing up 401(k) assets in a divorce

Because contributions made to a 401(k) account during a marriage come from marital income, family courts view them as marital assets. Thus, you may have a claim to as much as half of those contributions. Typically, the court issues an order that allows your ex-spouse’s 401(k) plan provider to divide up their plan into two. However, cashing out the portion of 401(k) contributions coming to you may be an option. In most cases, taking an early disbursement from a 401(k) account before reaching retirement age results in a hefty tax penalty. However, according to the website SmartAsset.com, divorce is one of the few cases where you can take an early withdrawal without being subject to a penalty.

Weighing the pros and cons

There are some potential drawbacks to cashing out your portion of a 401(k) during your divorce. You do have to pay income tax on any disbursement. Also, cashing out now forgoes any potential growth those assets may experience in the remaining years until you retire.

You can find more information on dividing up marital assets throughout our site.