Going through a divorce is difficult enough at face value. To discover that your husband cashed out a 401k during divorce is devastating. This can greatly impact your future financial security, especially because it was liquidated without your consent.
When a spouse cashes out a 401k in divorce it can be a deliberate attempt to hide assets. While it can be easy to panic, the legal system has protections in place so you are not left penniless.
Our legal team of Family and Divorce Lawyers at Albin Oldner Law has provided this guide for when your husband cashed out a 401K during divorce and what you can do to protect yourself.
Is It Legal for a Husband to Cash Out a 401k?
While a 401k account holder can request a distribution at any time, they may not be legally allowed to do so during a divorce
In most states, the moment a divorce is filed, the court issues Automatic Temporary Restraining Orders (ATROs). These orders legally “freeze” marital assets. They prohibit either spouse from:
- Selling, transferring, or cashing out investments
- Changing beneficiaries on retirement accounts
- Borrowing against marital property
If your husband cashed out a 401k during divorce, after being served with divorce papers, he has likely violated a court order. This can lead to serious legal consequences, including being held in contempt of court.
Defining the “Marital Portion” of a 401k
One of the most frequent questions during divorce is: Is the whole account mine? When determining what happens to 401k in divorce, courts look at when the money was contributed.
This is how it typically breaks down:
- Marital Property: Any contributions (and the growth on those contributions) made from the date of the wedding to the date of separation
- Separate Property: Anything contributed before the marriage began
An account is a marital asset if it was funded during marriage, even if the account is only in your husband’s name.
What to Do Immediately After the Cash-Out of your 401k
If you discover your 401k funds are gone, you need to act fast. Follow these steps to safeguard your interests:
Notify Your Attorney
Your lawyer needs to file a motion immediately. They can request that the court “freeze” any remaining accounts and ask for a record of where the 401k money went.
Document Everything
Get your hands on the most recent 401k statements from before the withdrawal. You need to prove the balance existed. If your husband claims the money “disappeared” or was “lost in the market,” these statements can prove otherwise.
Claim “Dissipation of Marital Assets”
In legal terms, wasting or spending marital money for non-marital purposes during a divorce is called dissipation. If the court finds your husband dissipated the 401k, you may be entitled to other funds.
This means that if your husband cashed out $100,000, the judge may award you $100,000 more from the sale of the family home or other accounts to make things even. So, if he thinks he has pulled one over on you, the court may say otherwise.
The Role of the QDRO
Under normal circumstances, a 401k in divorce is divided using a Qualified Domestic Relations Order (QDRO). This is a specific legal document that allows the plan administrator to move money from his account to yours without triggering the 10% early withdrawal penalty.
When a husband cashes out a 401k during divorce, he bypasses the QDRO process. This is a costly financial mistake for three reasons:
- Taxes: The withdrawal is taxed as ordinary income.
- Penalties: If he is under 59.5, there is an automatic 10% IRS penalty.
- Loss of Growth: That money is no longer invested and growing for the future.
If he cashed it out, he is usually the one responsible for those taxes and penalties—not you. Your attorney will argue that your share should be calculated based on the gross amount before he paid those penalties.
If you find yourself in this situation, the Albin Oldner Divorce lawyers team can help guide you through it so you are not forced to pay those penalties. We will also work to regain the money that was legally yours.
Potential Remedies and Legal Action
If your husband cashed out a 401k during divorce, the court has several ways to rectify this on your behalf:
- Offsetting Assets: As mentioned, you might get the house, the car, or a larger share of the savings account to make up for the lost 401k money.
- Legal Fees: The judge may order him to pay your attorney fees because his actions forced you to file extra motions to recover the funds.
- Contempt of Court: In extreme cases, a judge can impose fines or even jail time for violating the automatic stay on assets.
How to Prevent Further Loss
If your husband cashed out one account, and you have more you fear he will liquidate, you can take proactive steps. Consider this:
- Serve the Plan Administrator: Your lawyer can send a notice to the HR department or the financial institution managing his 401k, alerting them to the pending divorce. This can put them on notice that no other funds should be cashed out.
- Check Other Accounts: If he cashed out one account, check the balance of IRAs, pensions, and brokerage accounts.
- Forensic Accounting: If a large sum of money is gone, you may want to invest in a forensic accountant. They can trace the money to see if it was gifted to family members or hidden in offshore accounts.
Has Your Husband Cashed Out a 401k During Divorce? Contact the Albin Oldner Firm Today
If your husband has cashed out a 401k during divorce, the law is on your side. The Albin Oldner team is here to protect you and help you regain money lost. We have experience handling these types of situations and can steer you in the right direction.Call us today at 214-423-5100 or contact us online to schedule an appointment.