Can you take a disbursement from a 401(k) in a divorce?

If you were not the primary income earner in your marital home in Lakewood, then your divorce may bring with it a good deal of financial uncertainty. You may find yourself needing to secure new housing or having to pay to return to school or to receive vocational training (in order to secure your own gainful employment).

Many in your position may think that alimony will provide you with the funds needed for these things. Yet there are two risks associated with this assumption: first, there is no guarantee that the court will award you alimony in your divorce case. Second, such assistance is often spread out rather than being immediate. Instead, if you need an immediate infusion of cash following your divorce, you may look instead to your ex-spouse’s 401(k).

Cashing out your portion of 401(k) contributions

Yet is this even possible? While contributions made to your ex-spouse’s 401(k) during your marriage do come from marital income (this making them subject to property division), an early withdrawal from a 401(k) account typically nets a penalty (which can be as high as 10% of the distribution amount). Yet according to the website, divorce is one of the few scenarios where you can make such a withdrawal without a penalty (you will, however, have to pay income tax on the distribution).

The pros and cons of cashing out

As is the case with any significant financial decision, you should consider the potential benefits and drawbacks associated with cashing out your portion of your ex-spouse’s 401(k). The obvious benefit is the quick infusion of funds (to help satisfy some of the needs mentioned earlier). Yet cashing out means you walk away from any potential gains those funds could net over time. Depending on how far you are from retirement, those increases could be substantial.