Retirement Fund and Divorce

[~bs]

need to consider your age, employment status and other factors to see if you'll get hit with penalties.

In divorce generally... if you are required to forfeit some of your 401k to your spouse, it wouldn't be hit with those things, it would get allocated to her directly, and an account would be made in her name (to do with what she pleases afterwards). The character of the funds would not change unless she decides to cash out or roll it into a roth or something.

(unfortunately) I'm on a committee that oversees the 401k/profit sharing plan for my company, so I know a bit about these things.

[Bob B.]

My age - 47
Employment Status - employed full time
What are the other factors?

[riverwed070707]

Not a tax/penalty expert but just thought I'd weigh in that I had a similar situation 4 years ago. I was able to work it so that I gave him more assets and took on more debt in order to avoid having to touch or split my retirement. We have rental properties and in the end he got our primary, a nearly paid off rental property, the nicer car, the boat... and I took the rental with a high LTV/HELOC and any other debt we had. I remember posting here when I was weighing my options and some people thought I was crazy, but 4 years later I can say I'm happy with my decision because there's no way I could have recovered my 401k in time and the rental I took is now a great cash flowing asset with substantial equity that has allowed me to expand my portfolio. Maybe makes a difference but I was 30 when I got divorced. Consideration for you is that you can make catch up contributions on your 401k when you turn 50 so you could maybe recover that $$ more quickly than I could have if you have extra money to throw at it.

[Bob B.]

Not a tax/penalty expert but just thought I'd weigh in that I had a similar situation 4 years ago. I was able to work it so that I gave him more assets and took on more debt in order to avoid having to touch or split my retirement. We have rental properties and in the end he got our primary, a nearly paid off rental property, the nicer car, the boat... and I took the rental with a high LTV/HELOC and any other debt we had. I remember posting here when I was weighing my options and some people thought I was crazy, but 4 years later I can say I'm happy with my decision because there's no way I could have recovered my 401k in time and the rental I took is now a great cash flowing asset with substantial equity that has allowed me to expand my portfolio. Maybe makes a difference but I was 30 when I got divorced. Consideration for you is that you can make catch up contributions on your 401k when you turn 50 so you could maybe recover that $$ more quickly than I could have if you have extra money to throw at it.

Thanks for that response riverwed. I made up a spread sheet. I shoved all the assets her way (except for my truck and 403(b)). I shoved all the debts my way (except what's left on the primary). She gets 24% of the 403(b) to make it balance.

[Singuy]

Whoa guys. You should give your spouse as much of your retirement as possible if it's counted as 1:1 asset because it's PRETAXED. You don't want to give her a bunch of post tax assets and you get stuck with the tax bill layer at 59.

If you put 100k of post tax money into the same index as your pretax 100k, your growth will be exactly the same EXCEPT you don't have to pay ordinary income tax on your growth/initial 100k when you cash out at 59 with post tax assets. You just need to pay capital gains on the growth with the initial 100k being tax free since it's post tax investment.

Everyone likes to think their retirement account is some magically growth asset as long as you don't touch it except mathmatically it's at a disadvantage in a divorce.

[Petunia 100]

My age - 47
Employment Status - employed full time
What are the other factors?

If the court issues a QDRO, then there is NO tax impact to you whatsoever, irrespective of your age, employment status or ANY other factors. Don't fret about it; just let the court do its job.

[Bob B.]

Thanks Petunia. That's exactly what I was looking for.