It’s not a good idea to empty your 401(k) account before divorcing in Georgia, as this can result in tax penalties and even legal consequences. There are legal avenues, however, to withdraw from your retirement account if you need to access money for your divorce.
Let’s take a look at important implications of 401(k) divorce withdrawal, and strategies to protect your retirement. For legal advice on your specific situation, please speak with experienced divorce attorney Sharon Jackson.
Is Your Spouse Entitled to Your 401(k) Before Divorce?
In Georgia, a 401(k) account is usually considered marital property, which means it will be divided between spouses upon divorce. State law describes marital property as assets acquired by either spouse during the marriage, even if that spouse’s name is the sole owner on paper. If you made 401(k) contributions while married – which is the case for most spouses – that portion of your account is deemed marital property and thus divisible upon divorce.
But what about prior to the filing of divorce? Does your husband or wife have a claim to your 401(k) account? If you’re already entertaining the idea of a divorce, even without filing yet, it’s best not to empty your 401k just to keep it away from your spouse. When you do proceed with the marriage dissolution, the judge will likely award your spouse a share of the retirement so you’ll still have to pay it back.
Why You Shouldn’t Empty Your 401(k) Before Divorce Without Legal Guidance
Consider these potential consequences of cashing out your 401(k) account before divorce:
- Tax consequences. If you’re under 59.5 years old, you’ll incur a 10 percent penalty for an early withdrawal. This is a hefty amount that can significantly diminish the overall value of your retirement savings. Additionally, you may be required to pay federal income taxes based on the amount you withdraw.
- Disputes and allegations. If your spouse discovers that you drained your retirement account just before divorce, they could strongly dispute the property division. Further, they may accuse you of unfair conduct such as marital asset dissipation (wasting away the funds) or attempting to hide assets. Judges do not look favorably upon spouses who engage in such conduct. Asset concealment is unlawful and will result in penalties for the violator.
- Contempt of court. If divorce has been filed but is still pending, it comes with an automatic court order that temporarily prevents either spouse from transferring or disposing of assets. Withdrawing from your 401(k) would violate this court order and put you at risk of contempt of court, an offense that has criminal penalties.
Can I Withdraw from My Retirement Account to Pay for Divorce in Georgia?
Yes, it’s possible in some cases to withdraw from your 401k to pay for attorney fees and other costs related to divorce. Despite the risks we listed above, a knowledgeable lawyer can help you navigate divorce and IRS rules so that you can safely access your retirement funds in a time of need.
One pathway you can explore is making a hardship withdrawal, or as the IRS calls it, a hardship distribution. This type of withdrawal may exempt you from tax penalties but only if you can show that you have an “immediate and heavy financial need.” If you have minimal other assets from which to draw divorce funds, a 401(k) hardship distribution may be a last-resort option for you.
Consult a trusted lawyer or financial advisor as you make decisions regarding your retirement plan before divorce. This is a complex area of law where you’ll need an attorney’s case-specific assessment, legal know-how to avoid costly mistakes, and creative strategies for financial protection.
How to Protect Your Retirement Assets in a Georgia Divorce
As an account-holding spouse, you may also have concerns that your soon-to-be-ex would come after more than their fair share of your retirement savings. To safeguard your hard-earned retirement, you may explore these strategies:
- Pre-nuptial or post-nuptial agreement. A solid prenup or postnup should outline what happens to your retirement plan in the event of a divorce. If valid, this agreement will be honored by the court when splitting your assets between you and your spouse.
- Negotiating a trade-off. During property division, you can offer your spouse other assets such as the house or car so you can keep your entire retirement savings in return.
- Preparing to put money back into your 401(k). The divorce may result in your spouse getting a share of your savings, but you can get ready to put money back into that account after the divorce is over. From there on out, that investment will go towards yourself instead of being used to support your (now-ex) spouse.
- Enlist a divorce lawyer as soon as you can. With your lawyer’s help, you can start gathering evidence and building arguments to assert your share of the retirement account during property division. A good attorney should also get you in touch with reliable financial advisors to help plan out your retirement outlook.
Contact a Competent Georgia Divorce Attorney
Based in Gwinnett County, Attorney Sharon Jackson has been handling complex divorce cases for nearly 20 years now. With her sound legal guidance and sharp representation, she has protected the finances of many spouses in Georgia, helping them achieve the post-divorce life they deserve. Consult with her on your 401(k) divorce concerns. Call Sharon Jackson today at (678) 909-4100.
