Choosing whether to cash out your portion of a 401(k)

While the circumstances contributing to the end of your marriage in Georgia may prompt you to feel a certain sense of relief upon the conclusion of your divorce proceedings, the dissolution of your relationship may also being with a good deal of uncertainty (particularly if your divorce leaves you in a financially disadvantaged position). 

Many in the same situation come to us here at Family Lawyers of Atlanta wondering where they may get an immediate infusion of funds (either to secure new housing or to afford returning to school or vocational training). If you share the same question, then you may think that alimony will provide you with those funds. Yet an award of alimony is not automatic, and even if the court does mandate it, spousal support may not meet all of your immediate needs. 

Cashing out your portion of a 401(k)

One possible source of funds that you may be aware of is your ex-spouse’s 401(k). Given that contributions to such an account made during your marriage come from marital income, the court views them as shared assets. Typically cashing out any portion of a 401(k) prior to reaching retirement age will result in an early withdrawal penalty. However, according to the website SmartAsset.com, divorce is one of the few situations where an early withdrawal does not net a penalty. 

Ensuring your best interests

Yet before committing to such an action, you should first determine whether it is truly in your best interests. Cashing out that money now means that you give up on any potential growth it may experience (through investment returns and earned interest) from now until you retire. The amount of time remaining until you reach retirement age should thus factor into your decision. 

You can find more information on marital property division throughout our site.