While your upcoming divorce proceedings in Texas likely signal the welcomed end to your marital tensions, they may also bring with them a good deal of uncertainty. This is especially true if you were not the primary income earner in your marital home. You may find yourself in immediate need of funds to secure housing or pay for vocational training.
The common school of thought is that this money will come from alimony. Yet you need to remember that an award of alimony in a divorce case is not automatic. Instead, a more realistic funding option could be your ex-spouse’s 401(k)
Taking an early disbursement from a 401(k)
The contributions made to your ex-spouse’s 401(k) during your marriage came from marital income (thus making them marital assets). This makes them subject to property division, meaning you may receive an equitable portion of them.
This might immediately prompt the question of whether cashing out these funds is an option. In most circumstances, taking an early withdrawal from a tax-deferred retirement account typically nets a hefty tax penalty. However, according to information shared by CNBC.com, divorce is one of the few cases where early withdrawals are not penalized.
Considering the advantages and disadvantages
Yet before committing to cashing out the 401(k) funds potentially coming to you, you should consider a few of the possible disadvantages. First, you must pay income tax on the disbursement. Second, cashing out now forgoes any future potential growth that money may experience (through earned interest and investment returns). Depending on how far you are from retirement, that growth could be significant.
The information presented here should not substitute for actual legal advice. Rather, it simply provides some points to consider as you prepare for your divorce.