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

As you approach the conclusion of your divorce proceedings in Indiana, your thoughts inevitably turn towards your future. Specifically in regards to your financial future, you may worry about how you will be able to meet your immediate expenses if you were not the primary income earner in your marital home. Such expenses can include housing costs, living expenses and/or vocational training or schooling.

Many clients come to us here at Allen Wellman Harvey Keyes Cooley, LLP expecting alimony to cover those costs. Yet the awarding of alimony is not automatic. Your ex-spouse’s 401k) may be a more reliable source of immediate funds.

401(k) contributions as marital assets

The court views any contributions made to your ex-spouse’s 401(k) during your marriage as marital assets. That entitles you to a portion of them during property division proceedings. Typically the court divides up your ex-spouse’s account into two (with both you and your ex-spouse assuming control of your respective accounts). However, according to the website SmartAsset.com, you can cash out your portion of your ex-spouse’s 401(k) if you choose. In most cases, taking an early withdrawal from a 401(k) account nets a tax penalty (typically 10% of the amount of the disbursement), yet a divorce allows you to do this without incurring one.

Is it worth it?

This decision may seem to be an easy one, yet it is definitely one that merits consideration. You should remember that doing so foregoes the potential for those funds to grow through earned interest and investment returns. The length of time between now and retirement should thus factor into your analysis (given that many years may make that growth considerable).