For all of the elements that you may have been anticipating going into your divorce proceedings in Birmingham, dividing up your ex-spouse’s 401k may not have been one of them. Yes, retirement accounts are often viewed as personal assets, yet the contributions made to such accounts typically come from shared income (making them marital assets). Many come to us here at Eisenberg & Spilman PLLC after having discovered this questioning what is the best way to handle such funds. The answer to that question depends on your current circumstances.
One of the primary benefits of putting funds into a retirement account is that they have the chance to grow beyond your contributions. Earnings made through interest and investments over time can net you a handsome amount that’s ready to be taken out as income when you are ready to retire. For this reason, it is often recommended that when you are due funds from a retirement account in a divorce, you roll that money over into your own 401k. You can build upon that amount through your own contributions or contributions made through your own job.
Yet what if you find yourself in need of funds right now? What if you need to put a down payment on a new home or apartment, or pay for vocational training? You may consider taking your portion of your ex-spouse’s contributions and cashing them out right now. Many will tell you that you cannot do this without incurring an early withdrawal penalty. Yet according to information shared by CNBC.com, divorce is one of the few scenarios where you can withdraw from a retirement account without paying a penalty (you do have to pay income tax on the funds).
More information on dealing with property division can be found throughout our site.