A Brighter Future Is Within Your Reach

A Brighter Future Is Within Your Reach

Cashing out one’s portion of a 401(k)

On Behalf of | Jan 7, 2021 | Complex Property Division |

As people approach the conclusion of their divorce proceedings in Massachusetts, those who were not the primary income earners in their marital home may begin to experience a certain degree of trepidation as the uncertainty of their financial futures begins to set in. They may find themselves in need of immediate funds to pay for new housing, return to school or secure vocational training.

Many might assume that financial assistance will come from alimony. Yet the awarding of alimony is not automatic, with (according to the official website for the Commonwealth of Massachusetts) the court considering the following factors when making its determination:

  • The length of the marriage
  • The ages and relative health of both parties
  • The economic circumstances and earning capacity of both parties
  • The marital lifestyle the couple attained (and the ability of both to maintain that lifestyle after the divorce)

Should the court decide those factors do not merit an award of alimony, one will need to look elsewhere for immediate financial assistance. Their ex-spouse’s 401(k) may just provide it.

Taking a disbursement from a 401(k)

Contributions made to a 401(k) during a marriage are marital assets. According to the website SmartAsset.com, a non-contributing spouse may choose to cash out their portion of a 401(k) without facing the potential of an early withdrawal penalty.

Determining if cashing out is worth it

Should one seriously consider this option? The answer depends on how far they are from retirement. Leaving those funds in place allows them to grow through investment returns and earned interest over the years. That added growth could be substantial if one is still several years from retiring. The decision then comes down to the benefit of those additional funds compared to one’s need for money right now.