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Bill, Financial Advisor
Category: Finance
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Experience:  EA, CEBS - 35 years experience providing financial advice
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i have just received my divorce after 28 years of marriage ...

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i have just received my divorce after 28 years of marriage in Tenn. i am waiting on the quadro to be completed. The 401k is from my husbands company that he was recently fired from after 26 years with the company. He has not allowed me access to the administrator of his plan or any rules of it. I had to hire a separate attorney to try to file the quadro. We are still in this process and they say it may be december.I was awarded a specific amount $895,000.00 from the 401k I was stuck with debt on our house for 475,000.00 and will not be able to make the mortgage payments without using some of the 401k. Some people have told me to let the house go into foreclosure and leave the 401k alone. I am 50 years old and have a 16 year old whose father will not see or pay for future college. My mortgage payment is about $3,000.00 a month, i get $2100.00 in child support. And bring home with benefits approx. 2,000 a month income. What about my credit rating if i get foreclosed on?401kloan

Any funds that are paid to you from your ex-husband's 401(k) in accordance with the QDRO will be subject to income taxes but will not be subject to the 10% penalty that generally applies on distributions prior to age 59 1/2 (as distributions due to QDROs are an exception). If the 401(k) plan will permit you to leave the funds in the plan (after the QDRO is presented to them) and take periodic distributions, then you could take withdrawals as needed to make mortgage payments. This will allow you to spread out the tax implications over a number of years as only those funds that are withdrawn each year will be subject to taxes. Another alternative is to roll over the $895,000 to an IRA in your name. Once the funds are in the IRA you could begin taking periodic distributions to make the mortgage payments. If you establish the distributions as substantially equal periodic payments you will avoid the 10% penalty for IRA distributions prior to age 59 1/2. You could split the IRA into 2 different accounts to enable you to take substantially equal payments from 1 account and permit the other account to continue to grow on a tax-deferred basis.

If the house is foreclosed on it will negatively affect your credit. Perhaps you could sell the house and downsize or rent to avoid foreclosure.


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Customer: replied 9 years ago.
Can you separate the money into a Roth IRA?
Exactly how detrimental would a foreclosure be on my credit report and for how long.

the housing market is too slow would not be able to sell in time i don't think i could rent my house out and get enough money to cover the mortgage.

Is it just too easy to go for the foreclosure..and will it hurt me more in the long term. at my age i don't have much time to fix credit nor do i have the ability to replace the 401 money in the future. or do i just find a nice sugar daddy to take care of me. YUK

A rollover could be made to a Roth IRA as long as your adjusted gross income is less than $100,000. However, any amounts that are rolled over are considered a conversion and subject to income taxes.

A foreclosure will decrease your FICO score by approximately 125 - 250 points and remain on your record for 7 years. However, if you maintain your other debt obligations then your FICO score will start to improve within 2 years. Having a foreclosure on your record will result in paying higher interest rates when you apply for another mortgage. You may want to take periodic distributions from the 401(k)/IRA to make your mortgage payments until the housing market improves and then sell your house.


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Customer: replied 9 years ago.
will there be a penalty for each periodic distibution taken out for the mortgage. do you have to set up the periodic distributions on specified increments or can you just get example 3,000 a month until i sell. could you stop it or once started do you have to keep until the money is gone.

my adjusted gross is less than 100,000 is a
Roth a good idea for some of the money

my husband had taken loans out against the 401k in the past. Could i do that?

i own a small business and we have a sep plan. Should we set up a 401k so i could transfer it and then take a loan out against it

any other solutions out there?

If your ex-husband's 401(k) plan will permit you to leave the assets in the plan (after the QDRO is accepted) then any periodic distributions that you take from the plan will not be subject to the 10% penalty tax. Distributions from a 401(k) in accordance with a QDRO are exempt from the penalty. However, if you roll the assets to an IRA, the divorce exception to the penalty is not available. But another exception is available to avoid the penalty by taking substantially equal periodic payments from the IRA. Based on current interest rates and your age, you could withdraw approximately $36,000 (using the amortization method to calculate the substantially equal periodic payments) a year from an IRA account with a value of $650,000. The balance of the rollover ($895,000 - $650,000 = $245,000) could be placed in a separate IRA to continue to grow tax-deferred. Once you begin these payments you must continue taking them each year until you attain age 59 1/2. At that time you could cease taking them or modify the amount.

Making partial conversions to a Roth IRA each year is generally a good planning strategy if your projected tax bracket in retirement will be at the same tax bracket or a higher bracket than the bracket you are in when a conversion is made. If your projected tax rate in retirement will be significantly less than the rate you would pay on a conversion then it does not make sense. In addition, a conversion only makes sense if the taxes you pay for the conversion come from assets outside of the IRA (not from the IRA).

Yes, you could establish a 401(k) for your business and roll the funds into your 401(k). However, IRS regulations only permit loans of up to the lesser of 50% of the vested balance or $50,000. In addtion, any future distributions from the 401(k) (prior to age 59 1/2) will be limited to the plan's provisions which are not as flexible as IRA rules. Another option would be to rollover all of the funds to an IRA and then rollover only a portion of the funds in your IRA to your new 401(k). Then you could take a loan from the 401(k) and the funds remaining in the IRA would provide some flexibility if additional distributions are needed.

The IRS links below explain some of the rules in more detail:

See page 30 under "Additional exceptions for qualified retirement plans" -,,id=103045,00.html


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Customer: replied 9 years ago.
I have been unable to find a financial planner or cpa or lawyer that has provided me with the good information that you have. Thank you.

When you say that if I take part 401k and some in IRA rollover the rollover will give me some flexibility for additional distributuions. Please provide examples of the flexibility.

My sep plan administrator always has seemed to discourage us from changing to a 401k plan. Due to the ability for me to get a much needed loan with the 401k plan it seems to me it would be beneficial to now change to the 401k and discontinue the sep plan. What are the cost ratios, pros, and cons of changing over. What is the approximate cost annually for a 401k? Who would be the most qualified to help set up? Insurance agents?

The flexibility with establishing your own 401(k) and IRAs is that you could take a loan from the 401(k) of up to $50,000 (assuming you rolled over at least $100,000 into the 401(k)) and you also could begin taking substantially equal periodic payments (SEPP) from one IRA account if needed. If you began taking $36,000 from the IRA then you would need at least $650,000 in that IRA (based on current interest rates) to meet the SEPP requirements. The other $145,000 ($895,000 - $100,000 - $650,000 = $145,000) could be invested in a separate IRA account that will continue to grow tax-deferred and would be accessible if emergency funds are needed. However, you would have to pay the 10% penalty if funds are withdrawn prior to age 59 1/2 unless an exception is available (to pay college costs, or starting another SEPP). Using these strategies would result in you paying less taxes than taking a lump sum distribution of $475,000 from the 401(k) in one year to pay off the mortgage. However, if your ex-husband's 401(k) plan permits you to leave the funds in the plan and access them at any time in any amounts then this option would provide the most flexibilty. One factor that needs to be considered with this option is the menu of investment vehicles in his plan that you have to choose from.

If you don't have any employees in your business then establishing a 401(k) (sometimes referred to as a Uni-401(k), or Solo 401(k) for the owner only) is not complex nor expensive. Usually the annual fee for the custodian/trustee is approximately $100 or less. Once your assets exceed $250,000 you will have to have your accountant prepare an annual Form 5500-EZ for the plan. This should cost $100 - $250. In addition, the 401(k) plan will permit you to contribute more than a SEP based on your current business income. These types of plans can be established directly with no-load mutual fund families, discount brokers, full service brokers, and some insurance agents.

If you have any eligible employees (employees who work more than 1,000 hours a year) then setting up a 401(k) is more complex and more expensive. First, you may have to make some type of contribution for employees if you make or receive a contribution for yourself (depending on plan design such as traditional or safe harbor 401(k)). The fee to have the plan document prepared would be approximately $500 - $1,000 and the annual fee to administer the plan will be approximately $500 - $1,500 depending on the funding arrangement, the number of employees, and who is providing the annual administration (services such as nondiscrimination testing, top heavy testing, preparation of the 5500, SARs, and other compliance requirements). You will also need a fidelity bond for this plan which may cost approximately $125 a year. The investments could be made with the same types of advisors who could handle a solo 401(k) but generally you would use an outside party (usually referred to as a third party administrator) to perform the annual administration.

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Customer: replied 8 years ago.
i don't know if you got paid for all the answers?
Yes, I did. Thank you very much for the payments and bonuses.
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Customer: replied 8 years ago.
quadro issues-- divorce decree states during the course of the trial parties resolve alimony. In lieu of alimony husband will transfer $200,000 from husband's 401k. This transfer made after the division of property. as a division of property the court finds that the net marital estate should be divided equally between the parties. in order to equalize the division of marital property the trane savings plan 401k shall be divided by awarding wife the sum of 684,968 and awarding husband the sum of 418,691. this was exactly worded in decree. now trying to get the quadro they say the if stocks dropped i have to share in losses. shouldn't the difference in assets he receieved by separated first then the left over take the losses. what about the tax consequenses 50/50 split i think this needs to be addressed in quadro too then to make a 50/50 split his hard assets are the same and mine have the tax issue to be considered in the final quadro. will the quadro equalize that and what is the numbers

Generally, QDROs include language stating that the parties will share in any gains or losses based on their proportionate balances. During the period in which a determination is being made on whether a domestic relations order is a qualified domestic relations order (QDRO) the plan administrator is required to account separately for the amounts that would have been payable to the alternate payee during such period if the order had been determined to be a QDRO (ERISA Section 206(d)(3)(H)(i) and IRC Section 414(p)(7)(A). lt

See other provisions under Defined Contribution Plans -

See 4th paragraph under Mandatory provisions including adjustments for gains or losses -



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Customer: replied 8 years ago.
i don't get this answer. i told you what the actual decree read. Does quadro get to decide if we share losses and profits? what about the tax differences with me taking 401 k assets and him taking real assets. we took actual assets he got more and i made up by 401k but it was actual numbers and i don't see the tax consequences. the 401k is taxable money his assets he got were vaules with taxes already paid. can we forward this question to an attorney with quadro expertise. thank you

The language in the QDRO should be agreed to by both parties. So if both parties agree that the QDRO should state that the respective balances should be adjusted for gains or losses up until the actual distribution then this is permissible. Generally, this language is included in QDROs.

However, as you point out, the overall tax implications involving the division of assets is a very important factor. If the division of all assets was based on nominal pre-tax values rather than net after-tax amounts, then your attorney was negligent. If your attorney was involved in the property settlement then you should question him/her about this and possibly take your case to another attorney with more experience with divorce situations.

See factor #9 under "Division of Property" on page 11 -