03 Nov We’re separated. What happens if I take money from my 401(k)?

Q. My wife and I have been separated for six years and never made a divorce final. I lost my job — she is still working — and I want to take money from my 401(k). What will that mean when we finally file for divorce?
— Unsure

A. Many people are looking to take money from their 401(k) because of coronavirus-related job losses. They can take the funds and avoid the early withdrawal penalty, but they still have to pay taxes on the funds.

Here’s what you need to know about what it would mean for your divorce.

New Jersey is an equitable distribution state, which means that marital property is divided equitably upon divorce – or, in other words, fairly, said Jeralyn Lawrence, a family law attorney with Lawrence Law in Watchung.

However, this does not necessarily mean “equally,” she said.

“‘Marital property’ is defined as assets and debts acquired or earned during the course of the marriage, either individually or jointly, including real property, personal property, retirement accounts and bank accounts, as well as mortgages, loans, revolving debt, and the like,” Lawrence said. “In New Jersey, property titled in the name of one spouse rather than both spouses, such as a retirement account, is not enough to exclude that property from the proverbial `marital pot.’”

Lawrence said New Jersey does not recognize separation as the equivalent to the termination of a marriage or the end of the ability for spouses to acquire assets or debts. As such, the court would consider assets and debts that were accumulated after separation as ‘marital’ up until the time that divorce proceedings commence with either the filing of a complaint for divorce or a written agreement stipulating an “end date” of their marriage, she said.

So to your question, as long as you and your spouse remain married, and no complaint for divorce has been filed or a written agreement has been entered, your spouse would be entitled to share in the marital portion of your 401(k), she said.

“As such, the balance of the 401(k) from the date of the marriage to the end date of the marriage would be subject to equitable distribution,” she said. “If you were to make unilateral and premature withdrawals from your retirement assets, you may be individually responsible for reimbursing your spouse the portion of your retirement assets that would have otherwise been hers and would have otherwise been equitably divided in the course of a divorce.”

You should speak with an experienced family lawyer so that you have a complete understanding of equitable distribution in the State of New Jersey.

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This story was originally published on Nov. 3, 2020.

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