Will the court consider a retirements account in dividing property during a divorce? 10 Answers as of July 11, 2013

The money in retirement accounts such as 401k is withdrawn before retirement age, one needs to pay a 10% penalty and pay taxes on the withdrawn funds. Both parties to the divorce are far from reaching retirement age.

Ask a Local Attorney. 100% Anonymous. Free Answers.

Free Case Evaluation by a Local Lawyer: Click here
The Law Firm of Jessica M. Cotter, P.L.L.C. | Jessica M. Cotter
Generally speaking, if a retirement account is divided pursuant to a dissolution, then the money in the account should not be withdrawn. Rather, pursuant to an order from the court, the plan administrator will divide the account. Then if either party decides to cash in their portion, it is only that party who has a tax implication. In other words, if the account is divided, you would not have any tax liability if after the division, and the entry of the decree the other party cashes out their portion.
Answer Applies to: Arizona
Replied: 7/11/2013
Webster & Associates | Anita Webster
No, the retirement account is divided by a Qualified Domestic Relations Order (QDRO) and there are no taxes or penalties taken out for dividing the account as part of a divorce as long as it is done by way of a QDRO and rolled over into an IRA.
Answer Applies to: Nevada
Replied: 7/10/2013
Peters Law, PLLC
Peters Law, PLLC | Mark T. Peters, Sr.
No, the courts will not consider the 10% penalty. It works like this. You are married for 10 years and the 401k has been in existence for 15 years. The spouse gets one-half of 10/15s of the value of the 401k. That amount gets distributed to the spouse through a Qualified Domestic Relations Order (QDRO). That distribution is tax free. If the spouse takes an early withdrawal (except in limited situations), then the spouse pays the penalty.
Answer Applies to: Idaho
Replied: 7/10/2013
Glenn Milgraum PC
Glenn Milgraum PC | Glenn P. Milgraum
Absolutely, as any depletion of marital assets is fair game for adjustment when determining equitable distribution.
Answer Applies to: New Jersey
Replied: 7/10/2013
Law Offices of William Geary Co., LPA | William Geary
There are ways to get around the 10% penalty for the non-participant spouse who is receiving funds. Check with a competent attorney regarding this.
Answer Applies to: Ohio
Replied: 7/10/2013
    Elizabeth Jones, A Professional Corporation
    Elizabeth Jones, A Professional Corporation | Elizabeth Jones
    No. The community property value of the 401k is rolled over to a qualifying IRA for the other party.
    Answer Applies to: California
    Replied: 7/10/2013
    Kunin &Carman | Ishi Kunin
    Usually in divorce retirement accounts are divided without penalty. A QDRO (qualified domestic relations order) is prepared - the plan administrator rolls over the non employee spouse's share into a retirement account that has the same conditions re withdrawal pursuant to the QDRO.
    Answer Applies to: Nevada
    Replied: 7/10/2013
    John Russo | John Russo
    Retirement and Pension accounts are governed by federal ERISA laws , This is why courts advice pro-se parties to retain counsel this is complicated stuff, and No, courts do take early withdrawal into consideration, why? because that is the persons problem not the courts if they decide to cash in an IRA early, the QDRO handles the initial division of the funds what people do after is their problem, also if you are talking regular work related pensions there is no early cashing in.
    Answer Applies to: Rhode Island
    Replied: 7/10/2013
    Petit & Dommershausen SC
    Petit & Dommershausen SC | Tajara Dommershausen
    Yes, but not at that rate. Usually 20-25%
    Answer Applies to: Wisconsin
    Replied: 7/10/2013
    GordenLaw, LLC
    GordenLaw, LLC | Vanessa J. Gorden
    Yes. It is important that any agreement requiring one spouse to withdraw address how taxes should be handled to ensure it is fair to both parties.
    Answer Applies to: Nebraska
    Replied: 7/10/2013
Click to View More Answers: