Can I Withdraw Retirement Funds to Pay My Divorce Attorneys’ Fees?

Blue border with the gold freed marcroft divorce and family law logo with the black words "Retirment withdrawals & divorce attorneys' fees.'You want to access retirement funds before or during your divorce to pay your divorce attorneys’ fees, but you have questions, such as:

  • Is taking a retirement withdrawal allowed by the court?
  • Will I have to pay a penalty?
  • What are my options?

Read on for answers.

Does the court allow me to withdraw retirement funds to pay my divorce lawyer?

In Connecticut, there are series of automatic court orders that go into effect during divorce.  Those orders allow you to pay reasonable attorneys’ fees.

So the short answer is that you’re allowed to use marital assets to pay your reasonable attorney’s fees.

That said, you should consult with a divorce attorney before you do so.  There is a lot to consider depending on your individual situation, and you don’t want to wind up with more problems than you bargained for.

Read: What are the “Automatic Orders” in a Connecticut Divorce?

Is there a penalty if I withdraw retirement funds before or during my divorce?

It’s possible to avoid paying the 10% penalty for withdrawing retirement funds after your divorce, even if you’re young.  You just have to do it right.

Although you can’t withdraw funds before during a divorce and avoid the 10% penalty like you can as part of the property division in a divorce, there are two alternatives to consider.

They are:

  • 401k Loan
  • Roth IRA Contribution Withdrawal

How do 401k loans work for legal fees?

First up, one option is to take a loan from your 401k in order to pay your divorce attorneys’ fees.  Many 401ks allow for loans that do not trigger a 10% penalty.  Investigate whether you can take a loan from your 401k rather than making a withdrawal.

How do Roth IRA withdrawals work for attorney fees?

There are a lot of terrific things about Roth IRAs.  If you’re eligible for a Roth, you don’t get a deduction for Roth contributions.  But, when you start withdrawing funds after 59½, everything — including the growth — is tax-free.

So, a Roth IRA is a great way to save funds without worrying about taxation in the future.

The Roth has an additional, relatively little-known benefit for divorce clients who only have retirement funds, and need access to money to fund their divorce.

If you are under 59½, you may withdraw from your Roth the exact amount of your contributions with no penalties.  (And since with a Roth you have already paid tax on those contributions, you don’t pay any more tax when you withdraw them.)

One Important Caution

do not withdraw any funds from your Roth or take a 401k loan before speaking with your divorce attorney.  You’re allowed to use funds to pay reasonable attorneys’ fees under Connecticut’s Automatic Court Orders.  But like all of this, you have to do it the right way to avoid serious consequences.

Next Steps

To get our insights on the options in your particular situation, please reach out.

Our first step at Freed Marcroft, the Goals & Planning Conference, is designed to get to the heart of your problem and unveil your true goals.  Then, we take those goals along with the facts of your case and analyze them so that we can present you with recommendations and options on how to move forward.

Schedule your Goals & Planning Conference today, or contact us either here or by phone at 860-530-4346.