A fellow attorney in another law firm shared a story with me and some other colleagues about a client whose spouse cashed out the couple’s retirement funds –including cash, 401(k) and life insurance – in pursuit of gold and a person who claimed to be foreign royalty (imagine my surprise that people do still fall for this one…). One of the attorneys in the discussion was confused, claiming that the person taking the money would have needed a spouse’s signature to cash out a 401(k). That is, unfortunately, not the case.

While spousal consent is needed to name a non-spousal beneficiary on a 401(k), consent is not needed to take a distribution from the account. (Note - This is different for defined benefit plans, which require spousal consent if the participant elects a lump sum payment form of benefit).

This case in point is the exact reason there has been some legislative movement to protect spouses. A recent article in Smart Asset describes proposed changes to joint retirement account withdrawals and, specifically, 401(k) accounts.

While pensions have significant consent rules when it comes to making changes, 401(k) accounts do not. Under current law, a spouse can withdraw money, take loans, and make other changes just like any shared private portfolio. There are some boundaries; for example, one spouse cannot change beneficiaries without the other spouse’s consent.

These accounts offer little protection for spouses, and withdrawals could have devastating consequences. With their often-substantial funds, retirement accounts can be targeted by spouses during separation and divorce with lifelong ramifications.

Two current bills in the U.S. House and Senate seek to amend the Employee Retirement Income Security Act (ERISA) to offer increased spousal protection. If passed, the rules would require both spouses to consent before making withdrawals or other distributions from a 401(k) or other defined contribution plan. The proposed legislation does not affect IRAs, however, which will continue to allow withdrawals without spousal consent.

Divorce is fraught with emotional decisions and complications, much less the financial ramifications involved. If you need the help of a top divorce lawyer in Pennsylvania to ensure you receive a fair and equitable distribution of your marriage’s assets, contact us. Call 215-340-2207 or email us at info@bucksfamilylawyers.com.