24Years

My lawyer plans to leave 28% in my spouses 401k account prior to calculating 1/2 my share. Is this typical? I planned to transfer directly into my account so I don't understand why he is taking 28% off of the top?

AnvilheadII

could have to do with his length of employment or age of retirement account versus how long you were married? this isn't legal advice, just a google search result:

When it comes to dividing 401(k) and other defined-contribution accounts, couples are usually free to apportion the account as they choose. When they can't agree, the court will divide the portion accrued during marriage as dictated by state law, Ms. McBurney says.

A QDRO must spell out the formula to be used to divide the assets—whether each portion should be calculated as a percentage of the balance or a dollar amount and whether investment gains or losses should be shared equally or disproportionately until funds are transferred to a separate account for the nonemployee spouse, she adds. form the WSJ - RETIREMENT PLANNINGJune 3, 2012
How to Split a 401(k) in a Divorce

ABIDEBYLAW

I hate Losers, aka lawyers.......

24Years

Thanks Anvilhead. I tried to Google it as well. I wasn't finding the 28% taken off of the top. I still don't get it, and I would hope that my lawyer is acting on my behalf. We live in small towns so I can't help but question this given the comradery between lawyers.

Anyone been in my shoes with different/same result?

4MyBoys

We are just getting to that point in my divorce. I would think that maybe it has to do with either money put in the account either prior to or after the date you chose as your seperation date. Or is a form of pro rating if you have a 401K yourself?

That is the only reasons I can think of it would not be split 50/50....

4MyBoys

24Years

ABIDEBYLAW...I'll take that as a show of support, thank you! I'm sure they're not all loser's though I can understand frustrations with the system and with lawyer's in general. I know we have some good ones as a part of this forum ! (or at least one).

amy55

How many years are you married and how many years did he contribute to the 401k plan? If he contributed to this prior to the marriage, then it would be reduced by a percentage.

Ex. -- married 15 years, he contributed for 20. So he would have contributed 25 % before marriage.

Does this work out for you? Was he contributing to 401k before you were married?

24Years

4myboys: My lawyer said, "this is how it is done, 28% is taken off of the top"; no further explanation and (Anvilhead) my spouse started this account after we were already married (May 2nd is our divorce and May 25 would have been 28 years of marriage). We've been separated for 2 years.

CeciliaV

Are you in a 28% tax bracket? I'm no lawyer, but I'm relatively well-versed on investments, and when you take an early distribution from a pre-tax investment account, you will have to pay taxes on that distribution. I believe that you are exempt from the early distribution penalty (10% I think) with a qualified distribution (such as in cases of qualified divorce settlements), but you will still have to pay taxes on it IF you are taking the cash or if you are rolling it over into a post-tax investment (such as a Roth IRA). If you do not have an immediate need for the cash and if you have an option to roll it into another 401(k) or into a traditional IRA, then you will likely avoid the taxes and the penalty. If you want to do that rollover into your own pre-tax investment account and if your spouse is not going to be taking an early distribution either, do talk to your lawyer - it may change the calculations he is using.

CeciliaV

Ah, I know the stereotype, but we have some absolutely lovely SR folks who are lawyers!

amy55

Cecilia, I think I do agree with you.

If the cash is being withdrawn, then yes taxes have to be paid. I did not have to do this because his pension fund was rolled over to mine

24Years

I don't have much in retirement (no where near his 28% off of the top) as 10 years ago we put most of mine into a renovation into our home...which I am fortunate paid off largely at this point (despite current market) in terms of investment for return.

4MyBoys

It sounds like a rollover, not a cashing out of the account. I have learned that I pay my lawyers enough they can explain exactly why they do it. 28% is a lot, it better be a good explaination. Just keep in mind, don't be Holly GoPolitely. You are not taking his money, you are taking your 1/2 of the potion he was able to put away for both of you. Just happens to be in his name. (I really struggle with this.) Make sure you get what is owed to you.

4MyBoys

24Years

The cash is going to be rolled into my 401K, and the lawyer knows this (I'm not withdrawing any cash). We are in the 28% bracket but I still don't get this. I may need to call another lawyer for advice as I don't know how else to have a better idea unless someone is familiar if each state may have different laws (I'm in Wisconsin).

CeciliaV

ah, okay, so Wisconsin is a community property state (so 50/50 division), but I still don't know where the 28% comes from unless he's assuming taxes for cashout. Hrm.

LexieCat

You are PAYING this lawyer to advise you. Tell him or her you want an explanation for the 28 percent. Ask him or her to give you the law or regulation that governs it. "This is how it's done" doesn't cut it.

Alternatively, if you don't want to pay the lawyer for the time it may take to answer the question, contact the fund manager and ask that person. Ask if there is some reason for a 28 percent deduction when the account is split in this manner.

24Years

I will take your advice LexieCat. By fund person do you mean those involved with the 401K?

Thanks.

24Years

If anyone is curious to know the answer, I will post it after I contact his 401k management.

I will not be sure what to do if my lawyer is misinforming me since he has been in practice for many years.

24Years

Well I spoke with the 401k group and they are not aware of any reason 28% would be taken off of the top, (adding unless it's a lawyer fee [yikes...no way; pretty sure that is not the case] and he added it is not the first lawyer that didn't know what they were talking about and later stated there could be something he and I are not aware of that the lawyer will bring to light.!? Hmmm...I called during the evening so I'm not sure I was speaking with someone within my own state, but I will get to the bottom of this...it is upsetting to think the lawyer wouldn't know but maybe that is just me since I would imagine he has had plenty of experience in this area (?).

ShootingStar1

Talk to a financial planner/advisor as well as your lawyer. There are specific ways that transferring 401K funds must be done to preserve their non-tax status.

As for your lawyer, don't give him or anyone the benefit of the doubt. Just because they are a lawyer, doesn't mean they know the ins-and-outs of divorce law and the financial consequences.

Sometimes if one spouse gets more of one asset, the other spouse gets more of another asset. So, for example, if you are getting more of the equity from a house, he may get more of the retirement funds.

I don't think there is ANY cut and dried "You must do THIS" in a divorce, and I would be most unhappy with this lawyer's curt non-answers. I'd probably want a different lawyer to finalize the settlement to make sure I was getting my fair share.

ShootingStar1