• 12
  • May
    2011

Whether you and your spouse are headed for a divorce or are currently in the process of securing one, you likely have innumerable concerns regarding asset protection. One of these concerns probably has to do with the ability of your former spouse to withdraw money from the 401(k)s that were otherwise meant to fund your retirement.

Today's post will continue the previous discussion. Please see "Divorce and your 401(k): Some important considerations" for background information.

Post continued ...

While you may feel as if there is relatively little that you can do to prevent your former spouse from withdrawing/depleting funds from their 401(k), you may actually have more authority over the account than you think.

For example, many 401(k)s have provisions written into the governing plans that require spousal consent for any removal of funds (i.e., withdrawal, loan). In addition, some 401(k)s prohibit the removal of funds altogether while still others make any removal of funds subject to clearly defined restrictions.

It is also important to note that your former spouse's efforts to deplete their 401(k) may be stymied by certain restrictions set forth by the federal government. To illustrate, the federal government limits the amount that can be borrowed from a 401(k) to 50 percent of the vested account balance (up to a limit of $50,000).

If you and your former spouse finally do agree to a property settlement that includes the division of 401(k)s and other retirement plans, a court will order the creation of a qualified domestic relations order (QDRO).

In essence, a QDRO is standard, semi-complex language that is included in final divorce papers. It has two distinct benefits:

  • It establishes your legal right to receive either 1.) a set amount of payments from a 401(k) or 2.) a certain percentage of the balance of a 401(k).
  • It enables you to withdraw your share of a 401(k) and deposit it (aka "roll it over") into a tax-free individual retirement account (IRA). This way there will be no tax consequences and you can invest the funds as you wish.

If you would like to learn more about divorce, property division or asset protection, you should strongly consider speaking with an experienced legal professional.

This post is provided for informational purposes only and is not to be construed as legal or financial advice.

Stay tuned for more from our Denver divorce blog ...

Related Resources:

Can I take money out of my 401K during my divorce? (The Huffington Post)