401K to refinance after divorce?

ramriceNovember 30, 2009

Need some advice. My soon to be ex-husband wants to refinance our house and buy me out. the problem is that by the time he pays me child support and the mort/taxes/homeequity he has only about $300 left per month.

I dont' want the house because it is too much work for me. It's pefect for him since he can't have a house with stairs (artificial leg).

Is it possible for him to cash in part of his 401k? I know there are only certain times you can do this (i.e purchasing a home or preventing foreclosure).

If anyone has done this or attempted to do this I would welcome your advice!

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cordovamom

It depends on your 401k. Some do allow for hardship withdrawals and for purchasing of a home, but you'll have to read the plan documents to determine if yours is one. I have one brother and a brother in law that did this. They had to pay a 10% penalty for early withdrawal as well as the taxes. I think they ended up paying about 40% of what they each withdrew. I believe that if your spouse turns 55 in the withdrawal year that he doesn't have to pay the penalty of 10%, but he'll still have to pay the taxes.

    Bookmark   December 1, 2009 at 7:17AM
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Billl

Well, this isn't really advice for you, but if your husband is listening....

Sell the house. Split the money. I know this is a painful time and the last thing you want is another major change in your life, but a clean break is usually the best thing emotionally and economically. Even the most cordial of divorces are traumatic. Don't make any decisions in a traumatic state that will severely impact your life and finances for decades. Cashing out a 401k is that type of decision.

    Bookmark   December 1, 2009 at 10:03AM
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sylviatexas1

Husband is "soon to be ex", so the wisdom of his decisions is his own business...
& he's a ready, willing, & (we hope) able buyer who can get your name off that mortgage.

He can call his HR people or 401 people to be sure he can get the funds.

I wish you the best.

    Bookmark   December 1, 2009 at 12:20PM
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Billl

"so the wisdom of his decisions is his own business." ???? Generally, a 401k is considered marital property and is divided in divorce proceedings. Any decisions about withdrawals from it in the middle of a divorce certainly aren't just "his business."

Anyway, if he really is intent on doing this, you need to talk to a lawyer. In the divorce, a judge will have to issue a qualified domestic relations order specifying the division of the 401k. If everything is done properly, you will get a 1 time opportunity withdraw money from the 401k without the 10% penalty. You would still have to pay taxes on it though.

Don't encourage him to do this outside of the actual divorce proceedings. Once that money is out of the 401k, things can get much trickier. Depending on the state, that penalty and taxes may be part of your marital property, so you could end up having to pay for his decisions.

    Bookmark   December 1, 2009 at 1:27PM
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sylviatexas1

oops, you're right of course.

I was going by OP's saying that he'd have only about $300 a month after expenses, interpreting it to mean that she's worried about him managing on that.

    Bookmark   December 1, 2009 at 4:19PM
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