Divorce can bring with a great deal of uncertainty. You may have no idea where you will live in Florham Park or how you will be able to support yourself. Alimony may be an option (especially if you were not the primary income earner in your marital home), yet such a benefit is not awarded automatically. Plus, monthly alimony payments may not be able to help you if you need immediate funds to put down on a house or apartment, or pay to go back to school or receive vocational training.
If you are entitled to a portion of you ex-spouse’s 401k (or more specifically, the contributions made to their 401k during your marriage), that could turn out to be the source of the money you need. In most cases, people are discouraged from withdrawing from their 401k prior to reaching the age of retirement. Doing so could force you to pay an early withdrawal penalty of up to 10 percent of the fund’s total value. Fortunately for you, CNBC.com reports that having a Qualified Domestic Relations Order authorizing payment from a 401k account to an alternate payee (in this case, you) allows you to receive a funds disbursement without having to pay the penalty.
This may allow you to receive a quick injection of cash immediately following your divorce. Yet withdrawing your portion of a 401k is not a choice to be made lightly. You should remember that by taking the money now, you lose out on the income-generating potential that it offers over time (both through earned interest and investment). Plus, while you can avoid the early withdrawal penalty, you do have to pay income tax on the funds you receive.