401K Loans and Divorce Property Distribution

During divorce negotiations parties will always hear the phrase ‘equitable distribution”. Florida divorce laws require that each spouse receive a fair share of all marital property. This property should include ASSETS and MARITAL LIABILITIES. These days many couples have 401K savings plans. During a divorce proceeding, such an asset would obviously be dispersed equitably. Parties might wish to be aware of a specific case involving the dispersal of a 401K so as to be properly educated during any divorce negotiation/proceeding.

The case in question (Teague v. Teague) involved a couple who married and petitioned to dissolve said union in 2011. During mediation talks the couple agreed to have the wife receive one half of the husband’s 401K monies accrued from the time of the marriage to January, 2008. It was further agreed that loans/withdrawals taken on this 401K account would also be reviewed during distribution talks.

A Qualified Domestic Relations order (QDRO) entered by a trial court stated that the wife’s distributed 401K amount would NOT be reduced by any reported outstanding loan values. Thus, the wife received a rather substantial amount while the husband’s share was significantly reduced by outstanding loan amounts. Note here that liability issues were not divided between the spouses.

This decision was appealed at the 4th DCA level and the above referenced distribution was determined to be faulty. The loans taken on the 401K account were for the benefit of BOTH spouses and their married lifestyle. This verbiage is important. If monies from anywhere offer advantages to BOTH SPOUSES during their union, then under the concept of equitable distribution both spouses must take on any financial obligation which ensues from same. In the Teague case this appeal wording meant that BOTH parties should share in the repayment of loans taken on the 401K during the marriage. The 401K is an asset but also a liability which must be addressed on both sides of the distribution talks. Mr. Teague need not have shouldered the entire repayment burden of a 401K loan. That was inequitable distribution.

This case and its appeal scenario are brought up here to educate BOTH parties involved in marriage dissolution proceedings. Divorcing couples, according to the law, MUST share EQUALLY in all assets AND debts. Certainly special circumstances can be argued but that it beyond the purview of this article. The Teague case shows that equitable distribution of assets is not always easy to achieve and may involve additional court time and expense. Although divorce proceedings can become emotional, adversarial, etc., parties must be able to take a step back and learn how to protect themselves and achieve not only what is rightfully theirs, but also take into account the financial liabilities which will become theirs upon final dissolution. It is imperative that full financial disclosures be made to your legal representatives so that any advice dispensed is complete and relevant to your personal circumstances. Information is available for the asking. Protect yourself, your assets, and your future.