Divorce Question - 401K QDRO

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mitchapalooza
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Divorce Question - 401K QDRO

Post by mitchapalooza » Fri Mar 08, 2019 12:33 pm

Hey gang. I rarely post, but have been a long time lurker and appreciate all the good info here. I'm hoping to get some opinions on something.

I'm going through a divorce that should be finalized any day; final decree signed and filed with the court, just waiting for it to be signed by the judge. We have already negotiated and signed a Property Settlement Agreement that includes divisions of assets, etc. Part of that entitles my ex to a flat $150K from my 401K and it will be up to her to file the QDRO for that once the divorce is final, which should be within the next 1-3 months.

Since this is a known specific amount (rather than a % of my balance) and a known near-term transfer, I intended to move the $150K into a money market within my 401K and earmark it for that use. However, as many of you probably already know, I learned that the money will be pulled proportionately form all my investments within the 401K and that I cannot direct it to come from just one investment.

So, I am considering just allocating all of my 401K to a money market for now until the transfer is made to her and then go back to my desired asset allocation with the remainder. I would lose out on any potential market gains over the next 1-3 months but would protect myself on the downside should the market make a big correction during that time.

Total balance right now is about $400K and that is the majority of my savings at this time.

Any thoughts on whether this is a good idea or not? Thanks!

JoinToday
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Re: Divorce Question - 401K QDRO

Post by JoinToday » Fri Mar 08, 2019 1:08 pm

mitchapalooza wrote:
Fri Mar 08, 2019 12:33 pm
....
However, as many of you probably already know, I learned that the money will be pulled proportionately form all my investments within the 401K and that I cannot direct it to come from just one investment.

So, I am considering just allocating all of my 401K to a money market for now until the transfer is made to her and then go back to my desired asset allocation with the remainder. ......

Sorry to hear of the divorce.

1. I didn't know that the assets could only be pulled proportionately. I assume you already spoke with the 401k provider to verify you cannot segregate $150K for the future split.
2. I think moving all your 401k to a MMF for now is a prudent choice -- This is what I would be doing.
3. Do you have an IRA that you can re-allocate to compensate for the change in 401k assets? In other words, you are moving a bunch of money to MMF in your 401k, and move money within the IRA to equity to maintain your desired AA?
I wish I had learned about index funds 25 years ago

megabad
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Re: Divorce Question - 401K QDRO

Post by megabad » Fri Mar 08, 2019 1:43 pm

mitchapalooza wrote:
Fri Mar 08, 2019 12:33 pm
So, I am considering just allocating all of my 401K to a money market for now until the transfer is made to her and then go back to my desired asset allocation with the remainder. Any thoughts on whether this is a good idea or not? Thanks!
Statistically, this will probably have a negative outcome for you unless you are highly exposed to sequence of return risk at the moment (retiring soon). I would not call it a good idea from a monetary standpoint.

ResearchMed
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Re: Divorce Question - 401K QDRO

Post by ResearchMed » Fri Mar 08, 2019 1:47 pm

How about splitting the total in half.
Keep half "as is" in terms of how it's invested (proportionately).
And put the other half in a MM fund.

Then, whichever way "the market" affects your pot o' money, it will be attenuated (for better or for worse), from each perspective.
It's one way to deal with short term uncertainty.
Will this help you to SWAN (sleep well at night) during what is already a stressful time in your life?

RM
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bigred77
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Re: Divorce Question - 401K QDRO

Post by bigred77 » Fri Mar 08, 2019 2:18 pm

I would probably just leave it alone. I assume you already have a lot on your plate with a divorce getting finalized and there are other things pulling on your attention.

That being said, if you do have concerns, I think the right way to look at this is you now have a leveraged portfolio until the QDRO is filed and processed. You have 250k invested in your 401k and you've borrowed 150k at 0% interest. Your ex can force repayment of principal at anytime, but you are going to see investment gains/losses magnified by this leverage on the 250k that you're truly entitled too.

Edit - If you want to deleverage your portfolio, just put the 150k in a MM account and wait for the QDRO to remove the 150k amount proportionally from all sources. Then immediately reinvest the remaining MM account balance back into your desired AA. The net effect is the same as if you set 150k aside and they took the amount solely from the MM account.

krow36
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Re: Divorce Question - 401K QDRO

Post by krow36 » Fri Mar 08, 2019 2:32 pm

This is interesting from a behavioral economics standpoint. As it stands now, with the markets where they are, she will get 37.5% of the 401k. Your concern is that if the market goes down, she will get a larger percentage. But, if the market goes up, she will get a smaller percentage of the 401k. You are proposing to get out of the market to prevent her getting a larger percentage, even though that will prevent your part of the 401k from growing if the market goes up. And it prevents her from getting a smaller percentage of the 401k.

I think what you purpose is market timing. Would you go to MM on fears of a downturn if there were no divorce? Hopefully not. But you are willing to do it to prevent her from getting a higher percentage, although no more actual money.

Interesting!

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Ketawa
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Re: Divorce Question - 401K QDRO

Post by Ketawa » Fri Mar 08, 2019 2:35 pm

Transferring to a money market fund makes perfect sense. You have a known, large, fixed obligation in 1-3 months. Don't take risks with the money that you do not need. What would you do if you were buying a house in 1-3 months? Would you have all your intended down payment in risky assets? Probably not. I wouldn't consider this $150K a part of your investment portfolio; there is no need to reallocate in your IRA to risky assets to compensate. That doesn't do anything to change the situation.

The potential upside in 1-3 months is earning 5-10%. The potential downside is losing 50%. The market doesn't go up the way it can go down.

After the distribution is made, reallocate the next day.

ResearchMed
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Re: Divorce Question - 401K QDRO

Post by ResearchMed » Fri Mar 08, 2019 2:42 pm

Ketawa wrote:
Fri Mar 08, 2019 2:35 pm
Transferring to a money market fund makes perfect sense. You have a known, large, fixed obligation in 1-3 months. Don't take risks with the money that you do not need. What would you do if you were buying a house in 1-3 months? Would you have all your intended down payment in risky assets? Probably not. I wouldn't consider this $150K a part of your investment portfolio; there is no need to reallocate in your IRA to risky assets to compensate. That doesn't do anything to change the situation.

The potential upside in 1-3 months is earning 5-10%. The potential downside is losing 50%. The market doesn't go up the way it can go down.

After the distribution is made, reallocate the next day.
The difference is that for a down payment, or such, OP would know the exact amount and set that aside. And then OP would remove ONLY that amount, as planned.

In this case, the $150k will be taken in proportion from EACH separate holding, if I understand correctly. That's not quite the same thing.
It's not just that $150k set aside that will be "removed".

RM
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Re: Divorce Question - 401K QDRO

Post by Dottie57 » Fri Mar 08, 2019 2:44 pm

JoinToday wrote:
Fri Mar 08, 2019 1:08 pm
mitchapalooza wrote:
Fri Mar 08, 2019 12:33 pm
....
However, as many of you probably already know, I learned that the money will be pulled proportionately form all my investments within the 401K and that I cannot direct it to come from just one investment.

So, I am considering just allocating all of my 401K to a money market for now until the transfer is made to her and then go back to my desired asset allocation with the remainder. ......

Sorry to hear of the divorce.

1. I didn't know that the assets could only be pulled proportionately. I assume you already spoke with the 401k provider to verify you cannot segregate $150K for the future split.
2. I think moving all your 401k to a MMF for now is a prudent choice -- This is what I would be doing.
3. Do you have an IRA that you can re-allocate to compensate for the change in 401k assets? In other words, you are moving a bunch of money to MMF in your 401k, and move money within the IRA to equity to maintain your desired AA?
This. Move to a MM now.

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SquawkIdent
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Re: Divorce Question - 401K QDRO

Post by SquawkIdent » Fri Mar 08, 2019 2:51 pm

FYI...it took my ex wife’s attorney 13 months to draw up a QDRO. I questioned my attorney repeatedly about this and was told 1 - 1 1/2 years post mediation agreement to get this done is considered “reasonable”. Where are you coming up with the 1-3 month estimate? Be careful making and assumptions unless something is in writing and enforceable.

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Re: Divorce Question - 401K QDRO

Post by Ketawa » Fri Mar 08, 2019 2:57 pm

ResearchMed wrote:
Fri Mar 08, 2019 2:42 pm
Ketawa wrote:
Fri Mar 08, 2019 2:35 pm
Transferring to a money market fund makes perfect sense. You have a known, large, fixed obligation in 1-3 months. Don't take risks with the money that you do not need. What would you do if you were buying a house in 1-3 months? Would you have all your intended down payment in risky assets? Probably not. I wouldn't consider this $150K a part of your investment portfolio; there is no need to reallocate in your IRA to risky assets to compensate. That doesn't do anything to change the situation.

The potential upside in 1-3 months is earning 5-10%. The potential downside is losing 50%. The market doesn't go up the way it can go down.

After the distribution is made, reallocate the next day.
The difference is that for a down payment, or such, OP would know the exact amount and set that aside. And then OP would remove ONLY that amount, as planned.

In this case, the $150k will be taken in proportion from EACH separate holding, if I understand correctly. That's not quite the same thing.
It's not just that $150k set aside that will be "removed".

RM
That is why the OP would rebalance as soon as the distribution is made. It's far better to be at a lower risk allocation for 1 day than risking a large chunk of money for 1-3 months, effectively leveraged 1.6x at 0% interest with most of the OP's savings.

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Re: Divorce Question - 401K QDRO

Post by Jackbnimble » Fri Mar 08, 2019 3:00 pm

SquawkIdent wrote:
Fri Mar 08, 2019 2:51 pm
FYI...it took my ex wife’s attorney 13 months to draw up a QDRO. I questioned my attorney repeatedly about this and was told 1 - 1 1/2 years post mediation agreement to get this done is considered “reasonable”. Where are you coming up with the 1-3 month estimate? Be careful making and assumptions unless something is in writing and enforceable.
Agreed 100%.

Took my current wife more than 2 years to get hers from her ex's plan.

Are you prepared to be out of the market for 2 years with all of your 401(k)? Hopefully it doubles and the $150,000 will be less than the growth.

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Re: Divorce Question - 401K QDRO

Post by THY4373 » Fri Mar 08, 2019 3:09 pm

JoinToday wrote:
Fri Mar 08, 2019 1:08 pm
1. I didn't know that the assets could only be pulled proportionately. I assume you already spoke with the 401k provider to verify you cannot segregate $150K for the future split.
It might vary depending on the 401k provider but I ran into the exact same issue. Initially my ex's and my property agreement was pulling from my Roth IRA and Trad 401k balance but NOT (initially) my Roth 401k balance. My provider said point blank we will only pull proportionally. So we had to amend our property settlement to rejigger where funds were pulled from.
Last edited by THY4373 on Fri Mar 08, 2019 3:14 pm, edited 1 time in total.

ResearchMed
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Re: Divorce Question - 401K QDRO

Post by ResearchMed » Fri Mar 08, 2019 3:13 pm

THY4373 wrote:
Fri Mar 08, 2019 3:09 pm
JoinToday wrote:
Fri Mar 08, 2019 1:08 pm
1. I didn't know that the assets could only be pulled proportionately. I assume you already spoke with the 401k provider to verify you cannot segregate $150K for the future split.
It might vary depending on the 401k provider but I ran into the exact same issue. Initially my ex's and my property agreement was pulling from my Roth IRA and Trad 401k balance. My provider said point blank we will only pull proportionally. So we had to amend our property settlement to rejigger where funds were pulled from.
I hadn't heard of the "proportionately" bit before, but it makes sense - and it might be a legal issue, not just "per plan", to avoid conflict.

I could see a vindictive spouse putting "the other spouse's money" into some really bad choice, perhaps even hoping it would go down.
That's easier to see than someone putting that other money into "the best allocation possible", if her/his money isn't also mostly invested that way.

RM
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THY4373
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Re: Divorce Question - 401K QDRO

Post by THY4373 » Fri Mar 08, 2019 3:14 pm

OP first off congratulations on your divorce. Honestly my divorce was one of the best things to happen to me and indeed my ex and we are much happier post divorce and get along great. I got so sick of folks telling me they were sorry.

OP if you are on good terms with your ex can't you just get them to do the QDRO promptly? My ex and I (we get along fine) did all our paperwork post divorce in like three months. We certainly could have done it sooner but a couple of smaller items weren't a huge rush.

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Re: Divorce Question - 401K QDRO

Post by Ketawa » Fri Mar 08, 2019 3:20 pm

Jackbnimble wrote:
Fri Mar 08, 2019 3:00 pm
SquawkIdent wrote:
Fri Mar 08, 2019 2:51 pm
FYI...it took my ex wife’s attorney 13 months to draw up a QDRO. I questioned my attorney repeatedly about this and was told 1 - 1 1/2 years post mediation agreement to get this done is considered “reasonable”. Where are you coming up with the 1-3 month estimate? Be careful making and assumptions unless something is in writing and enforceable.
Agreed 100%.

Took my current wife more than 2 years to get hers from her ex's plan.

Are you prepared to be out of the market for 2 years with all of your 401(k)? Hopefully it doubles and the $150,000 will be less than the growth.
Counterpoint, what if the market goes down? A 20% loss wouldn't mean losing 20% for the OP; he would lose 32% of the $250K that right now belongs to him. A 50% loss would almost wipe out his retirement!

This situation is equivalent to being able to borrow $150K at 0% interest and invest it over an unknown time period of 1 months to 2 years (based on other responses). If the OP is comfortable doing that, then simply invest in a riskier asset allocation to begin with. Otherwise, people generally shouldn't invest in risky assets with a large, known, fixed expense due in a short as a month.

He doesn't have to put the entire 401k into a money market fund, just enough to ensure $150K is safe, then rebalance when the distribution is made.

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Re: Divorce Question - 401K QDRO

Post by MarkBarb » Fri Mar 08, 2019 4:33 pm

Put $150,000 into the MM just like you planned. Then, as soon as they do the proportional withdrawal, re-invest the remaining MM funds. Aside from being out of the market for one day, it should work out identically to if they'd taken the money all from the MM fund.

For example: 150K in MM + 450K in X. You want them to take the 150K from the MM, but they take 50K from MM and 100K from X. That leaves you with 100K in MM and 350K in X. You move the 100K from the MM back into X, which gets you back to 450K in X.

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Re: Divorce Question - 401K QDRO

Post by SquawkIdent » Fri Mar 08, 2019 4:34 pm

Jackbnimble wrote:
Fri Mar 08, 2019 3:00 pm
SquawkIdent wrote:
Fri Mar 08, 2019 2:51 pm
FYI...it took my ex wife’s attorney 13 months to draw up a QDRO. I questioned my attorney repeatedly about this and was told 1 - 1 1/2 years post mediation agreement to get this done is considered “reasonable”. Where are you coming up with the 1-3 month estimate? Be careful making and assumptions unless something is in writing and enforceable.
Agreed 100%.

Took my current wife more than 2 years to get hers from her ex's plan.

Are you prepared to be out of the market for 2 years with all of your 401(k)? Hopefully it doubles and the $150,000 will be less than the growth.
A clarification on my point...it took 13 months to get QDRO from the other side. Then it had to be filed with the court, approved by them and then sent to the custodian. Who then had to send me the division split and allow a set amount of time for me to argue. If no argument was made by my side then the division was to take place on a set date. It's a long process. And I would say all told probably closer to 2 years total. IMHO, absolutely ridiculous. Although my division was different than yours, I just managed the account as if it was still all mine. YMMV. Good luck. :sharebeer

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Re: Divorce Question - 401K QDRO

Post by THY4373 » Fri Mar 08, 2019 4:50 pm

SquawkIdent wrote:
Fri Mar 08, 2019 4:34 pm

A clarification on my point...it took 13 months to get QDRO from the other side. Then it had to be filed with the court, approved by them and then sent to the custodian. Who then had to send me the division split and allow a set amount of time for me to argue. If no argument was made by my side then the division was to take place on a set date. It's a long process. And I would say all told probably closer to 2 years total. IMHO, absolutely ridiculous. Although my division was different than yours, I just managed the account as if it was still all mine. YMMV. Good luck. :sharebeer
Wow maybe it varies by state or something? My ex and I went from divorced in late November to QDRO fully completely in early January so around six or seven weeks. Would have been less but for the aforementioned fact that we had to amend our property settlement. And when I mean fully complete her money was pulled from my account by early January. Or maybe it was because we did a collaborative divorce.

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Re: Divorce Question - 401K QDRO

Post by megabad » Fri Mar 08, 2019 5:11 pm

Ketawa wrote:
Fri Mar 08, 2019 2:35 pm
Transferring to a money market fund makes perfect sense. You have a known, large, fixed obligation in 1-3 months. Don't take risks with the money that you do not need. What would you do if you were buying a house in 1-3 months? Would you have all your intended down payment in risky assets? Probably not. I wouldn't consider this $150K a part of your investment portfolio; there is no need to reallocate in your IRA to risky assets to compensate. That doesn't do anything to change the situation.

The potential upside in 1-3 months is earning 5-10%. The potential downside is losing 50%. The market doesn't go up the way it can go down.

After the distribution is made, reallocate the next day.
Ketawa wrote:
Fri Mar 08, 2019 3:20 pm
Counterpoint, what if the market goes down? A 20% loss wouldn't mean losing 20% for the OP; he would lose 32% of the $250K that right now belongs to him. A 50% loss would almost wipe out his retirement!

This situation is equivalent to being able to borrow $150K at 0% interest and invest it over an unknown time period of 1 months to 2 years (based on other responses). If the OP is comfortable doing that, then simply invest in a riskier asset allocation to begin with. Otherwise, people generally shouldn't invest in risky assets with a large, known, fixed expense due in a short as a month.
I just want to point out, once again, that while the above may suit your emotional preferences, it may or may not be academically consistent. Theoretically, you always want to invest in risky assets when you are not exposed to an immediately large (relatively) sequence of returns risk. In other words, if the future value of the 150k in question is small in comparison to the value of his entire retirement portfolio in retirement and if there is ample time for long term growth of the rest of his savings, than OP would academically prefer to be in risky assets. A modest amount of time out of the stock market during a high return period could result in many hundreds of thousands of losses in compounded growth depending on OPs retirement time horizon. This is a fancy way of saying--theres no free lunch. If you want to hedge against the downside, you are faced with a steep cost to do so (in theory).

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Re: Divorce Question - 401K QDRO

Post by carmonkie » Fri Mar 08, 2019 6:12 pm

You must not be in a community property state. I got nixed 50%.

Per my attorney suggestion, I stopped contributing to the 401(k) altogether to avoid increasing her share and I glad I did, she took the cash instead of rolling it over and she got stuck with all the penalty taxes.

Back you.
Because you have to come up with a fixed amount, move 150K to MM proportionally from each existing fund this is to protect you in case of a major market downturn. This also servers for mental accounting purposes for when things settle.
You have enough remaining balance to cover the QDRO distribution. Let the market do its thing up or down. If there is a run, you will come ahead if there is a slight correction, you'd probably still have enough to cover. The MM is your safety net. Once the QDRO is approved you do not need to even re-allocate, let them take proportionally from each fund. While it is a fixed amount, at the end of the day it is a % of the balance and they will start taking money proportionally. I do not think they will deplete all your funds, at some point they will start taking chunks out of the MM, which is what you wanted them to do to begin with. Once all is settled, move back what is left from the MM back to your funds also in the same proportion you took them out. You are back with the same AA. Also, I do not think you need to stop contributing to your 401(k) since you agreed to a fixed amount.

It will sting to see your balance go down over night, but you will recover OP and you will be better at the end of the day.

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Re: Divorce Question - 401K QDRO

Post by ERISA Stone » Fri Mar 08, 2019 6:32 pm

Why not ask your attorney's advice to avoid doing something wrong (unintentionally)?

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Re: Divorce Question - 401K QDRO

Post by THY4373 » Fri Mar 08, 2019 7:27 pm

carmonkie wrote:
Fri Mar 08, 2019 6:12 pm
You must not be in a community property state. I got nixed 50%.
Not necessarily one is only going to take a 50% hit if their spouse has no assets. In my case my spouse and I were close on assets and I didn't take much of a "hit" in fact most of the money transferred between us was to balance out the taxable, Roth and Trad balances so we were equal on those. I had more of the latter ex the former. As far as I know most state require something along the lines of an equitable distribution between spouses of martial assets irrespective of community property states.

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Re: Divorce Question - 401K QDRO

Post by LadyGeek » Fri Mar 08, 2019 7:57 pm

The wiki has some background info: Qualified domestic relations order (QDRO)
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Re: Divorce Question - 401K QDRO

Post by Pacific » Fri Mar 08, 2019 9:00 pm

I learned that the money will be pulled proportionately form all my investments within the 401K and that I cannot direct it to come from just one investment.

So, I am considering just allocating all of my 401K to a money market for now until the transfer is made to her and then go back to my desired asset allocation with the remainder.
I must be missing something. What is the problem with the $150K coming out proportionately from each fund?

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Re: Divorce Question - 401K QDRO

Post by Steelersfan » Fri Mar 08, 2019 9:04 pm

SquawkIdent wrote:
Fri Mar 08, 2019 2:51 pm
FYI...it took my ex wife’s attorney 13 months to draw up a QDRO. I questioned my attorney repeatedly about this and was told 1 - 1 1/2 years post mediation agreement to get this done is considered “reasonable”. Where are you coming up with the 1-3 month estimate? Be careful making and assumptions unless something is in writing and enforceable.
Co-operative divorce here. Since the 401K was at my company and my company had the forms and process I did it, with the assistance of a specialist agreed to by both lawyers. It took 2 to 3 months from start to funds transferred, at most.

Her amount was fixed. I kept my allocation the same throughout the divorce and QDRO process. Anything else is market timing.

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Re: Divorce Question - 401K QDRO

Post by grabiner » Fri Mar 08, 2019 9:44 pm

mitchapalooza wrote:
Fri Mar 08, 2019 12:33 pm
Since this is a known specific amount (rather than a % of my balance) and a known near-term transfer, I intended to move the $150K into a money market within my 401K and earmark it for that use. However, as many of you probably already know, I learned that the money will be pulled proportionately form all my investments within the 401K and that I cannot direct it to come from just one investment.
This won't make much difference, because both you and your ex-spouse can reallocate freely. If the $150K comes out as $50K from a money-market fund and $100K from a stock fund, then on the day it comes out, you can move $100K from a money-market fund into a stock fund, and be in the same position as if you had just given up $150K in the money-market fund.
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Re: Divorce Question - 401K QDRO

Post by jimcrawford01 » Sat Mar 09, 2019 10:20 am

I was able to take a different course. Each State will have its own rules, I imagine.

In the Property Settlement Agreement that preceded the final Divorce Decree, we agreed to split the value (on a given date) of the Pension and 401k. I wrote a check for that amount and she wrote a letter waiving all rights to the Pension and the 401k. That way, she felt good and was immediately made whole with no risk and I felt good that the Pension and 401k were untouched and I willingly assumed the risk. Avoided the QDRO! Simplify, if you can.

Of course, this requires agreement. Not always achievable.

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Re: Divorce Question - 401K QDRO

Post by mitchapalooza » Mon Mar 11, 2019 2:40 pm

Thank you all for your responses. To clarify, The $150K is a fixed amount that was determined as of the date of separation, and is the amount that got us to 50/50 of all retirement assets (accounting for her 401K/IRA as well as mine) at that time.
bigred77 wrote:
Fri Mar 08, 2019 2:18 pm
That being said, if you do have concerns, I think the right way to look at this is you now have a leveraged portfolio until the QDRO is filed and processed. You have 250k invested in your 401k and you've borrowed 150k at 0% interest. Your ex can force repayment of principal at anytime, but you are going to see investment gains/losses magnified by this leverage on the 250k that you're truly entitled too.
The above is my main concern. She doesn't get $150k plus/minus gains/losses, she gets $150k regardless. So, if the market takes a hit I would be "selling" low just to cover. It sounds like the solution below, which was echoed by a few others, may be the best alternative option.
bigred77 wrote:
Fri Mar 08, 2019 2:18 pm
Edit - If you want to deleverage your portfolio, just put the 150k in a MM account and wait for the QDRO to remove the 150k amount proportionally from all sources. Then immediately reinvest the remaining MM account balance back into your desired AA. The net effect is the same as if you set 150k aside and they took the amount solely from the MM account.

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Re: Divorce Question - 401K QDRO

Post by mitchapalooza » Mon Mar 11, 2019 2:46 pm

Jackbnimble wrote:
Fri Mar 08, 2019 3:00 pm
SquawkIdent wrote:
Fri Mar 08, 2019 2:51 pm
FYI...it took my ex wife’s attorney 13 months to draw up a QDRO. I questioned my attorney repeatedly about this and was told 1 - 1 1/2 years post mediation agreement to get this done is considered “reasonable”. Where are you coming up with the 1-3 month estimate? Be careful making and assumptions unless something is in writing and enforceable.
Agreed 100%.

Took my current wife more than 2 years to get hers from her ex's plan.

Are you prepared to be out of the market for 2 years with all of your 401(k)? Hopefully it doubles and the $150,000 will be less than the growth.

Wow, 13 months to 2+ years seems absurdly excessive. does that include waiting from the date the agreement was signed until the divorce decree was finalized in order to process the QRDO? Or is that after the divorce was final, you had to wait another 2+ years just to process the QRDO?

I'm just waiting on the divorce to finalize before she files the QRDO. the divorce should be finalized within the next 2-4 weeks so I assumed another couple of months for the QRDO. But, yeah, I don't want to be completely out of the market for a year or two if it takes that long.

bberris
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Re: Divorce Question - 401K QDRO

Post by bberris » Mon Mar 11, 2019 3:18 pm

I don't get it. Of course selling now would protect you on the downside. So the ex gets a higher percentage if the market falls and a lower percentage if the market goes up. Are you feeling unlucky?

Jackbnimble
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Re: Divorce Question - 401K QDRO

Post by Jackbnimble » Tue Mar 12, 2019 11:26 am

[/quote]
Wow, 13 months to 2+ years seems absurdly excessive. does that include waiting from the date the agreement was signed until the divorce decree was finalized in order to process the QRDO? Or is that after the divorce was final, you had to wait another 2+ years just to process the QRDO?

I'm just waiting on the divorce to finalize before she files the QRDO. the divorce should be finalized within the next 2-4 weeks so I assumed another couple of months for the QRDO. But, yeah, I don't want to be completely out of the market for a year or two if it takes that long.
[/quote]

I think it depends on the company/plan administrator and the attorney.

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Steelersfan
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Re: Divorce Question - 401K QDRO

Post by Steelersfan » Tue Mar 12, 2019 11:56 am

Jackbnimble wrote:
Tue Mar 12, 2019 11:26 am

I think it depends on the company/plan administrator and the attorney.
I agree 100%. Both attorneys representing us referred the task to a paralegal experienced in doing QDRO's, and she was dealing with a large company experienced in doing them. That took 2 - 3 months. A friend used a lawyer with no real experience doing one, and had to deal with a small company and their outsourced HR provider. It's not clear they had done one. That one took 6 - 9 months and lots of angry phone calls and emails.

retireearly
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Re: Divorce Question - 401K QDRO

Post by retireearly » Wed Mar 13, 2019 10:20 am

Sorry about your divorce. I'm now in the same boat and it's not easy.

Regarding your question, IMO, this is about asset allocation. For ex, if you were comfortable with 100% equities, then it doesn't matter where that 150K is. If the 400K was cut in half the day before you were to xfer that money, you would be left with 50K in stock but your goal would have been 100% stock anyway, so it was irrelevant what happened in the market.

IF you wanted a 50/50 AA, in theory you have 250K now for your future in that pool of money (after her 150K) and you would want 125K stock/125 FI. So, for now, you could simply keep the 125K in stocks and ensure you have 275K in FI (with 150 of that being cash). Other factors in this includes any other source of funds/money that might impact your AA (home equity, none, etc, other plans).

Last, out of curiosity, if you don't mind me asking how your "date of separation" got finalized and agreed to? I have heard it can vary by judge, by court, my lawyers, etc. Sometimes it is the date something is filed but others when one took action and essentially started on the path to divorce which is often well-before things like mediation, court, etc. Feel free to send me a private message if that is too personal!

mitchapalooza wrote:
Fri Mar 08, 2019 12:33 pm
Hey gang. I rarely post, but have been a long time lurker and appreciate all the good info here. I'm hoping to get some opinions on something.

I'm going through a divorce that should be finalized any day; final decree signed and filed with the court, just waiting for it to be signed by the judge. We have already negotiated and signed a Property Settlement Agreement that includes divisions of assets, etc. Part of that entitles my ex to a flat $150K from my 401K and it will be up to her to file the QDRO for that once the divorce is final, which should be within the next 1-3 months.

Since this is a known specific amount (rather than a % of my balance) and a known near-term transfer, I intended to move the $150K into a money market within my 401K and earmark it for that use. However, as many of you probably already know, I learned that the money will be pulled proportionately form all my investments within the 401K and that I cannot direct it to come from just one investment.

So, I am considering just allocating all of my 401K to a money market for now until the transfer is made to her and then go back to my desired asset allocation with the remainder. I would lose out on any potential market gains over the next 1-3 months but would protect myself on the downside should the market make a big correction during that time.

Total balance right now is about $400K and that is the majority of my savings at this time.

Any thoughts on whether this is a good idea or not? Thanks!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

THY4373
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Re: Divorce Question - 401K QDRO

Post by THY4373 » Wed Mar 13, 2019 11:01 am

retireearly wrote:
Wed Mar 13, 2019 10:20 am

Last, out of curiosity, if you don't mind me asking how your "date of separation" got finalized and agreed to? I have heard it can vary by judge, by court, my lawyers, etc. Sometimes it is the date something is filed but others when one took action and essentially started on the path to divorce which is often well-before things like mediation, court, etc. Feel free to send me a private message if that is too personal!
I am not OP but the date of separation for my ex-spouse and I was the day I moved out of marital house. In my state you essentially need to live apart for a year if you have a minor child before you can divorce. It is possible to live in the same house and do this but it is more complicated and you needed to have witnesses confirm you were no longer living as a couple even though you were in same house. I imagine this is all very state specific.

retireearly
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Re: Divorce Question - 401K QDRO

Post by retireearly » Wed Mar 13, 2019 1:40 pm

Thank you. For me, the date of separation will be addressed in the next week or so and have been curious seeing how others have come up with it. I know if varies by state, situation, etc!

THY4373 wrote:
Wed Mar 13, 2019 11:01 am
retireearly wrote:
Wed Mar 13, 2019 10:20 am

Last, out of curiosity, if you don't mind me asking how your "date of separation" got finalized and agreed to? I have heard it can vary by judge, by court, my lawyers, etc. Sometimes it is the date something is filed but others when one took action and essentially started on the path to divorce which is often well-before things like mediation, court, etc. Feel free to send me a private message if that is too personal!
I am not OP but the date of separation for my ex-spouse and I was the day I moved out of marital house. In my state you essentially need to live apart for a year if you have a minor child before you can divorce. It is possible to live in the same house and do this but it is more complicated and you needed to have witnesses confirm you were no longer living as a couple even though you were in same house. I imagine this is all very state specific.
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.

bberris
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Re: Divorce Question - 401K QDRO

Post by bberris » Fri Mar 15, 2019 7:50 am

mitchapalooza wrote:
Mon Mar 11, 2019 2:40 pm
Thank you all for your responses. To clarify, The $150K is a fixed amount that was determined as of the date of separation, and is the amount that got us to 50/50 of all retirement assets (accounting for her 401K/IRA as well as mine) at that time.
bigred77 wrote:
Fri Mar 08, 2019 2:18 pm
That being said, if you do have concerns, I think the right way to look at this is you now have a leveraged portfolio until the QDRO is filed and processed. You have 250k invested in your 401k and you've borrowed 150k at 0% interest. Your ex can force repayment of principal at anytime, but you are going to see investment gains/losses magnified by this leverage on the 250k that you're truly entitled too.
The above is my main concern. She doesn't get $150k plus/minus gains/losses, she gets $150k regardless. So, if the market takes a hit I would be "selling" low just to cover. It sounds like the solution below, which was echoed by a few others, may be the best alternative option.
bigred77 wrote:
Fri Mar 08, 2019 2:18 pm
Edit - If you want to deleverage your portfolio, just put the 150k in a MM account and wait for the QDRO to remove the 150k amount proportionally from all sources. Then immediately reinvest the remaining MM account balance back into your desired AA. The net effect is the same as if you set 150k aside and they took the amount solely from the MM account.
Yes this seems right. The money you owe your ex is a debt, which leverages your portfolio if you do nothing. The strategy above neutralizes the leverage.

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