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Cashing out your interest in a 401(k) in a divorce

| Oct 21, 2020 | Divorce

The conclusion of your divorce proceedings in Texas no doubt inspires a certain sense of relief within you (as it no doubt signals an end to the stress that inevitably accompanies the dissolution of a marriage). However, you might also feel a certain sense of trepidation as you now look at your potential financial future (particularly if you were not the primary income earner in your marital home).

Many past clients have come to us here at Terry L. Hart, Attorney at Law in a similar position wondering where they might be able to secure a quick infusion of cash. The most apparent answer may be an alimony settlement, yet there is no guarantee of such an award in a divorce. One potential source of funds that many overlook, however, is your ex-spouse’s 401(k).

Why is a 401(k) a marital asset?

If you are like many people, then the fact that your ex-spouse’s 401(k) is subject to property division likely took you by surprise. Yet the contributions made to that account during marriage came from marital income. Thus, the court considers those contributions to be marital assets, thus giving you claim to a portion of them.

Cashing out your portion of a 401(k)

You might assume that taking a disbursement from a 401(k) account prior to reaching the age of retirement will net an early withdrawal penalty. That is the case in most situations, yet according to the website SmartAsset.com, divorce is one of the few situations where early disbursements are not penalized. Given that contributions to a 401(k) are tax-deferred, however, you will have to pay income tax on any amount you do choose to cash out.

You find more information on dividing up marital assets by continuing to explore our site.

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