What will this 401(k) withdrawal mean for my divorce?

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Q. I’m in the process of getting a divorce and I lost my job because of COVID-19. I took a $20,000 withdrawal from my 401(k) under the CARES Act so I could get out of our house. Will this be considered a marital asset and will I have to give half back?
— Trying to get by

A. We’re sorry to hear you’re having a tough time right now.

The answer to your question? It depends.

Generally, the value of a 401(k) and other retirement assets accumulated during the marriage is considered a marital asset and is subject to equitable distribution at the time of divorce, said Thomas Roberto, a family law attorney with Adinolfi, Lieberman, Burick, Falkenstein, Roberto & Molotsky in Haddonfield.

“If a retirement account is acquired during the marriage, it will likely be considered a marital asset subject to distribution,” he said. “If, however, all or part of the 401(k) is premarital in nature — acquired prior to the marriage — the premarital portion is generally excluded from equitable distribution.”

Roberto said if a complaint for divorce has been filed, neither spouse is permitted to liquidate or borrow from their individual retirement assets absent consent of the other spouse or a court order permitting the withdrawal.

Failing to obtain consent or court approval before making a withdrawal from a retirement account may be considered “dissipation” of a marital asset, he said.

Roberto said a court will consider acts of dissipation when dividing the assets and liabilities of a marital estate.

He noted N.J.S.A. 2A:34-23.1, which identifies the factors the court must consider in making an equitable distribution of property. One of those factors, identified specifically in N.J.S.A. 2A:34-23.1(l), is “the contribution of each party to the acquisition, dissipation, preservation, depreciation or appreciation in the amount or value of the marital property, or the property acquired during the civil union as well as the contribution of the party as a homemaker.”

If an act of dissipation is found to have occurred, the court has discretion in fashioning an equitable remedy to address the dissipation and to make the aggrieved spouse whole, Roberto said.

Determining what the appropriate equitable remedy may be in any given case is fact specific, he said, noting a court may compel the spouse who liquidated the account to repay all or part of the funds withdrawn.

But, he said, the overall value of the retirement asset would be a significant consideration.

“For example, if the 401(k) was of sufficient value such that the other spouse could still receive his or her fair share of the retirement asset even after the owner spouse’s unilateral withdrawal, then the appropriate remedy may be to simply give the other spouse a larger share of the remaining account value,” he said. “With a 401(k), consideration would likely also have to be given to market forces and post-complaint contributions to the account.”

Email your questions to moc.p1600713071leHye1600713071noMJN1600713071@ksA1600713071.

This story was originally published on Sept. 14, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.