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If divorce settlement proceeds were to be paid out of husband's 401k, am I responsible for paying the taxes and penalties

Asked over 3 years ago - Greenville, SC

My question is regarding a divorce settlement. The sum of money I was awarded is supposed to be paid from my ex's company pension account and his 401K. He and his lawyer are now saying that I am responsible for all the taxes and penalties for withdrawing this money. It will cut my settlement by 35%. Is this legally correct or am I being duped?

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Attorney answers (2)

Gabriel Cheong

Reputation Level 15

Answered over 3 years ago. Divorce / Separation Lawyer in Quincy, MA.

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Note that I am not licensed to practice in your state.

What they're saying, if I read you correctly, is untrue. When you do a property division in a divorce proceeding, retirement accounts are controlled by a creation of federal law called a Qualified Domestic Relations Order (QDRO). When executed properly, there are no taxes or penalties associated with dividing up retirement accounts.

You need to consult with a local divorce attorney to help you draft a QDRO. If you don't have a lot of money, I'm sure you can find an attorney that will charge you simply for the cost of drafting the QDRO. It's a couple of pages of legal documents and shouldn't cost you an arm and a leg.

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Blakely Copeland Cahoon

Reputation Level 6

Answered about 3 years ago. Estate Planning Attorney in Columbia, SC.

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I would advise speaking with your divorce attorney regarding a Qualified Domestic Retirement Order (QDRO). There are limited tax consequences to divorce settlements when done correctly. The Order should help you determine how to address the potential tax issues you are running into.

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