Can I Withdraw Money From My 401k For Divorce in Massachusetts?

Your marriage is over. And unfortunately, life seems to get more expensive during divorce—especially if there’s been a separation. Any time you split one household into two, costs increase. The finances can become tight.

Your living costs may be going up. But if there are significant issues at stake in your divorce, it can be dangerous to handle it on your own. You need a lawyer, but how are you going to pay for that? Can you use money from your 401k for legal fees?

You are allowed to use 401k money to fund your divorce.

A 401k and other types of retirement money are “property” for purposes of divorce. And in MA, all property owned by either party is considered for division. Therefore any money in your retirement accounts—or any other accounts for that matter—are in play and can be divided.

Most significantly, upon filing a divorce and the other party being served, the parties are prohibited by an automatic restraining order from transferring assets during the divorce absent a court order or an agreement between the parties. There’s a freeze on the assets.

However, there are exceptions to the freeze that apply to retirement accounts and any other assets. One of the exceptions is that the parties CAN withdraw from a retirement account for payment of reasonable attorney’s fees and costs related to the divorce.

Therefore, if you need to pay an attorney or to invest in any other service related to your divorce case, you’re allowed to withdraw your 401k money and use it for that purpose.

Although you can withdraw retirement money for your divorce, this should be your last resort. Withdrawals from a 401k, especially before age 59 1/2. generally result in taxes and penalties. There are limited exceptions to this rule, but early withdrawals for a divorce case is not one of them.

Therefore, before using 401k money for your divorce, you should carefully explore other options. For example taking out a loan from a bank or family member, or using credit cards may be a better financial move than dipping into retirement.

Also, in most cases, your spouse will receive a credit for the money you withdraw. Parties generally pay for their own attorney’s fees. Therefore, if you withdraw money from a marital asset—your retirement account—it’s likely that the court will consider this withdrawal in the overall division of property.

Withdrawing from your 401k is allowed if the money is being used to pay for attorney’s fees or other case-related services. In some cases, that’s necessary—especially if there are important issues at stake for which you need legal guidance. However, because of the taxes and penalties involved in early retirement withdrawals, it’s wise to explore other options.

If you have any questions about withdrawing from your 401k or any other divorce-related questions, feel free to contact us.

FAQs

Can i withdraw money from my 401k for divorce?

Yes, withdrawing money for legal fees in divorce is legal in MA. Once a divorce is filed and the other side is served, a restraining order goes into effect, which generally prohibits either party from making certain transactions. However, one of the few exceptions is that the parties can withdraw retirement money to pay attorney’s fees. If you’re thinking about doing this, you should explore other options first, as it’s generally a bad idea to tap into retirement before it’s necessary.

Is my ex wife entitled to my 401k?

Your ex-wife is entitled to your 401k in MA if it’s determined that it would be “fair and equitable” for it to be divided pursuant to your divorce. Whether your 401k is actually divided depends on a number of factors. Generally, the longer the marriage, the more likely it is to be divided.

How long do you have to be married to get half of everything?

There is no set threshold in MA for length of the marriage that results in property being divided equally. However, generally, the longer the marriage, the more likely it is that property will be divided—especially, property acquired during the marriage. The shorter the marriage, the more likely it is that the court will not divide any property (e.g. 6 month marriage) or divide only the marital portion of the property (what was accumulated or gained value during the marriage).

Can I cash out a QDRO?

Once a QDRO is processed in MA and the marital retirement funds are divided, either party can generally do what they want with the money, including cashing it out. However, before cashing out, it’s advisable to talk to an accountant about any taxes and/or penalties that may be incurred.

Who pays the taxes on a QDRO distribution?

Division of a retirement account via a QDRO is not a taxable event. However, after the account is divided, if either party makes a withdrawal on his/her account, that party is generally responsible for any associated taxes or penalties.