Taking Money out of Your 401(k) during Separation
There are many reasons why you may feel the need to take money out of your 40l(k) retirement account, and the economic downturn caused by the COVID-19 pandemic is a great example. If you are separated from your spouse and moving toward a divorce, however, it is complicated.
Marital property refers to those assets that you and your spouse accumulated during the course of your marriage, and in the State of Texas, this property is divided equitably (or fairly given the circumstances involved) in the event of a divorce. That property that you bring into the marriage with you and that you keep separate, however, remains your separate property. This is where things tend to get tricky when it comes to your 401(k) account and separation from your spouse.
Texas Does Not Recognize Legal Separation
If you and your spouse are separated, the State of Texas does not recognize this status. As such, dipping into your 401(k) – part of which (at least) is likely to be considered marital property – can be a concern as you move toward divorce. In the end, you may be required to compensate your ex for the funds you removed from a marital account, such as your 401(k). Regardless of the fact that the account is solely in your name, your 401(k) is probably a marital asset (to be divided equitably).
If you had the 401(k) account when you married, the amount therein is your separate property, but any increase in value since your marriage is considered marital property that will be divided equitably. If you have continued to work for the same company and continued to grow your 401(k), this increase (and the increase in interest accrued) must be addressed upon divorce. As such, there are some actions you can take now to help protect these assets:
By filing for divorce, you can help ensure that, as your 401(k) continues to increase in value (during your separation), the increase will not accrue as marital property.
If you can hammer out mutually acceptable terms regarding the division of your marital property (with the professional legal counsel of your respective divorce attorneys) – even if other terms remain up in the air – you can stop the clock on your retirement earnings being classified as marital property.
Discussing your options with a dedicated divorce attorney who is well versed in the division of complicated marital assets can help immensely.
Turn to an Experienced Killeen Divorce Attorney for the Help You Need
Divorce can be a financially draining process, but Brett Pritchard at The Law Office of Brett H. Pritchard – proudly serving Killeen, Texas – is a practiced divorce attorney with impressive experience helping clients like you make wise financial choices throughout the divorce process while protecting their financial rights. We are here for you, so please do not hesitate to contact or call us at 254-501-4040 for more information today.