Avoiding 401(k) Tax Penalties During Divorce Split
Hi, I’m Tulsa Dads.Law attorney Clint Hastings. I practice here in Tulsa, Oklahoma, and I focus on fathers’ rights.
In another video, I discussed Qualified Domestic Relations Orders (QDROs)—what they are and how they work. Now let’s talk specifically about tax penalties when dividing a 401(k) during divorce.
Avoiding Penalties through Proper Division
The short answer is: No, you do not have to take a tax penalty when your 401(k) is divided through a QDRO.
What’s happening is this: the QDRO carves out a portion of your 401(k) and transfers it into a separate 401(k) account for your spouse. It’s not a withdrawal—it’s simply a division. Now, each of you has your own account under the same plan, and there’s no penalty for doing that.
Withdrawal Options and Potential Penalties
However, if your spouse chooses to withdraw funds from her share of the account after the division, she may incur taxes and penalties, depending on her age and how the withdrawal is handled. The key point is: the division itself does not trigger any penalties.
Alternatively, if you’d rather just pay your spouse in cash instead of dividing the account, you could choose to withdraw funds from your 401(k), take the penalty, and pay her that way—but that’s optional and typically not recommended if you want to avoid penalties.
Get Expert Advice on Your 401(k) Division
The most efficient way to handle this is to use a QDRO to divide the account, create two separate retirement accounts, and avoid penalties altogether.
I hope this helps. If you have more questions about this or related issues, feel free to give Tulsa divorce attorney Clint Hastings a call at (918) 962-0900. We’d be glad to offer a consultation. Thanks.
