401k QDRO - Marital Debt

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401k QDRO - Marital Debt

Postby MG12345 » Sat Jul 11, 2009 2:36 am

Pending divorce. Have approximately $40k in my 401k -- $24k of which is community property. There's $15k in revolving community debt. Can a QDRO against the 401k be used to payoff the community debt? $20k or thereabouts to cover all credit cards and taxes owed. No other liquid assets available to payoff debt. Thanks.
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Re: 401k QDRO - Marital Debt

Postby Thoughts? » Sat Jul 11, 2009 4:41 am

You can use a QDRO to assign part of the 401k to her, and she can then assume the community debt. In other words, he who gets stuck with too much debt gets it offset with another source of cash or asset.

Keep in mind that the value of dollars in a 401k are not hte same as in a bank account. They need to be adjusted by tax bracket & amount of penalty anticipated if an early withdrawl were required.
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Re: 401k QDRO - Marital Debt

Postby spritom » Sun Jul 12, 2009 12:13 am

Agreed, the QDRO just allows for an exception to move retirement monies from one name to another. But it does nothing regarding taxes and the early-withdrawal penalties that would apply if the monies were taken out of the retirement status.
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Re: 401k QDRO - Marital Debt

Postby rsk4cu » Sun Jul 12, 2009 4:31 am

Actually a QDRO from you companycan plan (not your own IRA) be paid to the spouse in either an IRA for her or a regular account that she can use the money. She can split it/ She will pay income taxes on the withdraws, but NOT the 10%. I am giving my wife more of my company plan for her to use as exrta support. She only works part time and has almost no taxes. You can google it and find this easy. Good luck
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Re: 401k QDRO - Marital Debt

Postby rsk4cu » Sun Jul 12, 2009 4:41 am

More comments

If you are saying the $20K community debt, then you both are liable, correct? Or are you getting stuck with it? If its still community and you can the agreement to state you split it, then here is what I would do. She gets $12K of the community 401K leaving you $28K. You can transfer $12K as required and add your 1/2 of the debt $10K and get her to take the debt. Tell her you are voluntarily transferring the extra $10K to pay your 1/2. She can then the $ 22K after taxes to pay the $ 20K and you still have some 401K left....
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Re: 401k QDRO - Marital Debt

Postby Thoughts? » Sun Jul 12, 2009 7:21 am

Good thoughts / advice but there are a few clarifications needed to avoid over simplification or broad generalization.

The 401k provider is required to accept QDRO's -- but not willy nilly. A QDRO must be consistent with the 401k Plan Provisions. A court cannot just direct them to do anything, it is governed by the 401k plan rules. The 401k plan can reject any state court order to do somethign inconsistent with plan provisions, which are filed with and regulated by the Federal government.

Generally speaking in practice the QDRO will will direct the 401k balance to be split. Most plan documents direct the monies to be allocated in a different account within the 401k. At that point, plan provisions come into play. The 'new" owner, in this case the ex, the ex can withdrawal and put in an IRA, or the plan provisions may require the withdrawal, or whereever.

Generally speaking, the 10% penalty can be avoided if the disbursements/ownership changes are carried out within the context of a divorce decree. If it's much, be sure to talk to an accountant.
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Re: 401k QDRO - Marital Debt

Postby barrnon » Sun Jul 12, 2009 6:41 pm

You want IRS publications # 590, p. 18-19 available on line or by request.

But rules are for transfer to another 401k/IRA of other party. There is no penalty for the transfer from you to "it". However, if other party, under 59 1/2 chooses to withdraw after transfer to their 401K/Ira, all withdrawal penalities and taxes apply.

Read #590 gobbaltigook (sp) well after CPA husband died 2002, and I was 58, rules are so convoluted; another story
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