401k with loan, getting divorced
I have a client that has a $120,000 401k with a 30,000 loan. He is getting divorced and owes pretty much the entire 401k balance. It is my impression that the most he could give to his wife from the 401k is $90000. However, the client called the 401k vendor and reportedly was told that he could give his wife the entire balance of $120,000. Is this correct?
Permalink Submitted by Alan - IRA critic on Tue, 2014-11-25 17:18
His divorce attorney needs to contact the plan administrator to see exactly what the options are before drafting a QDRO. The plan may contain special provisions regarding how the outstanding loan affects the QDRO and if any portion of the loan can be transferred to the alternate payee (spouse). Since she probably does not work for the company, if she was awarded the entire 120k, the plan may handle it as an offset distribution, reducing the balance to 90k and retiring the loan. She also needs to determine if her share can be left in the plan since she can only take distributions without penalty (if under 59.5) if the distributions come directly from the plan under a QDRO. The QDRO exception does not apply to IRA rollovers.