Taking a Distribution From a Retirement Account

{3:00 minutes to read} When Charles and Lisa decided to divorce, they hired attorneys, who negotiated the terms of their agreement. As part of their settlement, Charles would receive $100,000 from Lisa’s 401(k). They had almost no equity in their house and decided that Charles would move out and Lisa would refinance the mortgage. Charles looked for an apartment in the area and quickly realized that the cost to rent was almost as much as the cost of a mortgage payment. Since there was no equity in the house he and Lisa owned, however, he did not have enough money for a down payment on a new home of his own.

After Charles received the $100,000 from Lisa’s 401(k), he consulted with a financial planner and learned that he could have taken a portion of this distribution as cash, without penalty, had he done so at the time of the transfer.

Unfortunately for Charles, it was too late. After the money was transferred, it could not be moved without a penalty, and Charles was left with the options of either:

• Renting an expensive apartment and doing his best to save enough for a down payment; or
• Paying the penalty to withdraw the money he needs.

Had Charles hired someone with both legal and financial knowledge, who could have provided him with this valuable information, he could have made a more informed decision and had a better outcome.

Financial decisions have some of the most far-reaching consequences for divorcing couples. While Charles’ attorney knew about the family law, he/she was not equipped to provide him with crucial financial information, which had a serious impact on his financial future.

Since a divorce mediator’s role is to provide their clients with information, not advocacy, they are a very valuable resource. Working with a mediator who knows about not only the legal but the financial issues, can be very beneficial. Even if the mediator does not have the particular financial expertise needed, they likely have a network of professionals, both financial and legal, who can assist their clients in making these kinds of decisions.

If you are going through a divorce, consider working with a mediator who can help you stay in control of the outcome, while providing you with the relevant information to make informed decisions about which you can feel confident.