Husband Cashed Out 401k During Divorce

husband cashed out 401k during divorce

Going through a divorce can be an incredibly stressful and emotional time. One of the most complex parts of the divorce process is determining how to equitably divide marital assets like retirement accounts. Many couples have poured a significant portion of their net worth into accounts like 401ks over the course of their marriage. When one spouse makes unauthorized withdrawals or cashes out a 401k account during divorce proceedings, it can throw a wrench into the asset division process.

If you’re concerned that your spouse may have inappropriately withdrawn or cashed out funds from a 401k account during your Minnesota divorce, it’s important to understand how the courts may classify and divide the funds. Here’s what you need to know about 401k accounts in divorce and what to do if your spouse empties the account.

How are 401ks Typically Divided in a Minnesota Divorce?

In Minnesota, almost all assets acquired during the marriage are considered marital property and subject to equitable division in a divorce. This includes retirement accounts like 401k plans.

When dividing a 401k or other retirement account in a divorce, the court strives to split the account fairly and equitably. The overall value of the 401k is determined as of the valuation date, which is usually the date of separation or the date the divorce proceedings began.

There are a few options for dividing a 401k:

  • Cash-out and split the proceeds: The account holder cashes out the 401k, and the proceeds are split between spouses according to the divorce decree. This often incurs taxes and penalties.
  • Transfer a portion to the non-account holder: Using a Qualified Domestic Relations Order (QDRO), a portion of the 401k can be transferred directly to the non-account holder spouse’s IRA account without tax penalties.
  • Keep separate but divide the balance: The account remains in the account holder’s name, but a portion of the overall balance is considered assigned to the non-account holder. The non-account holder spouse is still entitled to their share of the 401k balance.

The court will consider factors like the length of the marriage, each spouse’s financial situation, and contributions to the 401k when determining how to divide retirement accounts. The goal is an overall equitable division based on the facts of the case.

What If Your Spouse Empties the 401k During Divorce?

Unfortunately, it’s not unheard of for the spouse who owns a 401k account to make unauthorized cash withdrawals or liquidate the account entirely during a divorce. This can throw a wrench into the asset division process.

If your spouse took money from a 401k account during your Minnesota divorce proceedings without your consent, here is how it may be handled:

Accountability for Missing Funds

The courts will likely find your spouse accountable for any money withdrawn or spent from the 401k during the separation and divorce process. Those funds will still be considered marital property up for division.

Your spouse may be ordered to pay you back your rightful portion of the 401k balance, either in one lump sum cash payment or through an offset of other assets and accounts he was entitled to keep.

Lost Growth and Interest

Not only will your spouse owe you a share of the withdrawn 401k funds, but you may also be entitled to compensation for the lost growth and interest those funds would have earned if left untouched.

Courts can require your spouse to pay you the amount the 401k withdrawal would have increased in value from the time it was taken to the time of divorce finalization. This aims to make up for the loss of growth you suffer from not having access to your share of funds.

Tax and Penalty Payments

If the 401k withdrawal was subject to income taxes and early withdrawal penalties, your spouse may be ordered to pay those costs directly. You generally should not be responsible for taxes and penalties associated with funds you never authorized withdrawing.

Account for these added tax and penalty payments when calculating the overall value owed to you for your share of the 401k funds.

How to Protect Your Interest in a 401k During Divorce

If you’re concerned that your soon-to-be ex-spouse may try to cash out a 401k account during your Minnesota divorce, here are some tips:

  • Speak to your divorce attorney immediately about options to freeze assets through temporary orders. This prevents changes to accounts.
  • If your spouse already withdrew money, ask your lawyer about sending a demand letter requesting the funds be returned to preserve the account balance.
  • Seek a restraining order from the court preventing any withdrawals pending the divorce decree.
  • Work with your attorney to draft the divorce decree promptly to officially dictate how accounts are divided.
  • Request regular account statements so you can monitor the 401k balance. Any unexplained losses could indicate unauthorized withdrawals.
  • Ask the court to award additional assets, more alimony, or interest to make up for any funds already withdrawn from the 401k by your spouse.
  • Consider alternative dispute resolution like mediation to come to aswift agreement on asset division, including retirement accounts.

By taking proactive steps, you can minimize the chances that your spouse will cash out a 401k during divorce. An experienced Minnesota divorce attorney can help strategize how to protect your long-term financial interests during this process.

How to Recover If Your Spouse Already Cashed Out a 401k

Let’s say your spouse already withdrew or cashed out a 401k account during your separation, against your wishes and without your consent. While the money is gone, you may still have options to recover your rightful share of the retirement funds:

  • Request documentation: Ask your spouse to provide account statements and records of any 401k withdrawals made after separation. This documents the violation.
  • Send a demand letter: With your lawyer, send a formal letter demanding the withdrawn funds be redeposited into the 401k account to restore its balance. Set a short deadline.
  • File a motion: If the funds aren’t returned, file a motion asking the court to enforce its automatic restraining order prohibiting asset dissipation.
  • Ask for interest: Request that the court orders your spouse to pay interest (at the judgment rate or higher) on the amount withdrawn to account for lost investment earnings.
  • Offset with other assets: Request that the court award you a greater share of other marital property like the house, investments, etc. to offset your share of the cashed-out 401k.
  • Request attorney fees: Ask that your spouse pays your attorney fees related to addressing the improper 401k withdrawal since their actions complicated the divorce.
  • Alimony or child support: If your spouse spent the 401k funds already, seek higher alimony payments as compensation for the missing retirement funds.

While you may not get back the exact 401k funds withdrawn, there are ways the court can compensate you financially for your rightful share. An experienced divorce lawyer can help put a dollar figure on your portion of the cashed-out 401k and make a case for recovering that value elsewhere in the divorce settlement. Don’t let a sneaky spouse get away with reducing your long-term financial security in the divorce.

Protect Your Assets During Divorce With Experienced Legal Counsel

Going through a divorce is hard enough without the added stress of a spouse maliciously draining retirement accounts like a 401k. Yet this, unfortunately, occurs much more frequently than one would hope during contentious divorces.

If you have any concerns about your spouse hiding, withdrawing, or dissipating marital assets during your Minnesota divorce, please reach out to the experienced family law attorneys at Martine Law. We have extensive experience handling complex asset division cases and high-net-worth divorces. Our legal team can advise you on your rights and options, review account records for any unauthorized 401k withdrawals, send demand letters on your behalf, and take swift legal action if needed to protect your assets during divorce. Don’t let an unscrupulous spouse take you for a financial ride during your divorce – contact us today to schedule a free case consultation.

Frequently Asked Questions?

Can my spouse take money from a 401k account during divorce?

Taking withdrawals or cashing out a 401k during divorce without the consent of the other spouse is generally prohibited. The account is still considered joint marital property.

Am I responsible for taxes if I didn’t approve the withdrawal?

You should not be responsible for taxes or penalties associated with a 401k withdrawal you didn’t consent to. Your spouse may have to compensate you for any tax costs.

Can a QDRO divide a 401k without withdrawal penalties?

Yes, a QDRO allows dividing the 401k between spouses tax-free. No early withdrawal penalties are incurred.

Author Bio

Xavier Martine

Xavier Martine is the Founder of Martine Law, a Minnesota criminal defense and family law firm. Serving clients in Minneapolis, MN, and surrounding areas, he is dedicated to representing clients in a wide range of criminal matters, including DWIs, drug charges, misdemeanors, domestic violence, and other criminal charges. He also represents clients in family law matters, including divorce, child support, and child custody.

Xavier received his Juris Doctor from the Mitchell Hamline School of Law and is a member of the Minnesota State Bar Association. He has received numerous accolades for his work, including being named among the “Top 10 Criminal Defense Attorneys Under 40 in Minnesota” in 2021 by The National Academy of Criminal Defense Attorneys. He was also named the “Best DUI Lawyer in Minneapolis” award in 2023 by and a “Rising Star” in 2023 by SuperLawyers.

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