Check out some similar questions!

pepsimax1981 · Oct 21, 2009, 01:10 PM

I reside in Michigan, my husband and I divorced 6 years ago, since then he has taken me to court a surplus of times to try to ruin me with lawyer fees. I was awarded 50% of the 401k in the settlement. Since then I have had to withdrawl fund to live off and pay all the fees associated with the many court trips. He know is trying to take me to court to purpose the 401k withdrawals as income to reduce child support payment and make me pay back any overages. Can anyone advise on this?

stevetcg · Oct 21, 2009, 01:31 PM

It seems very unlikely that they can be called income since they were already yours. While you have to pay taxes and report them as income, child support is calculated based on net salary which is before 401k is withdrawn.

It's the same effect as if you had an automatic deduction into a savings account. You wouldn't compute a withdrawal from that as income.

Basically it is only income as far as the IRS is concerned and then only because of the special class of funds.

His claim is baseless.

cdad · Oct 21, 2009, 02:35 PM

Originally Posted by stevetcg

It seems very unlikely that they can be called income since they were already yours. While you have to pay taxes and report them as income, child support is calculated based on net salary which is before 401k is withdrawn.

Its the same effect as if you had an automatic deduction into a savings account. You wouldn't compute a withdrawal from that as income.

Basically it is only income as far as the IRS is concerned and then only because of the special class of funds.

His claim is baseless.

I have to disagree on this one. I believe it depends on the state where the order is passed. The 401k withdrawals if that's what they really are would be subject to income tax therefore also subject to income. 401k money is suppose to be set aside and not spent until a later time in life. That's why there are penalties on it. It may very well be counted as income on a suplemental level. About the same as you would treat a bonus from a regular job.

stevetcg · Oct 21, 2009, 03:16 PM

If the parent paying support were to have 17% taken from his check, it would be before the 401k were taken out... so why wouldn't it work the other way?

Its pretax money but not presupport.

stevetcg · Oct 21, 2009, 03:30 PM

Example:

Parent pays 17% child support, 10% to 401K. Base salary is 1000/wk.

Child support would be $170, 401k would get $100, base taxable income would be $900 (assuming no other pretax deductions)

Support would already have been paid for that period... withdrawl from 401k would not be subject to child support.

s_cianci · Oct 21, 2009, 03:57 PM

Whether the 401K is considered income to you is immaterial as far as child support to you for your child(ren) is concerned. An increase in your income, if you want to call the 401K withdrawals "income", does not reduce his child support obligation. His child support obligation can only be lowered by the court if he can demonstrate a change in his circumstances, such as a decrease in his income due to factors beyond his control or if he were to have another child.

stevetcg · Oct 21, 2009, 03:59 PM

Originally Posted by s_cianci

Whether or not the 401K is considered income to you is immaterial as far as child support to you for your child(ren) is concerned. An increase in your income, if you want to call the 401K withdrawals "income", does not reduce his child support obligation. His child support obligation can only be lowered by the court if he can demonstrate a change in his circumstances, such as a decrease in his income due to factors beyond his control or if he were to have another child.

That varies by state. Some states account for the custodial parents income when figuring support.

s_cianci · Oct 21, 2009, 04:04 PM

Originally Posted by stevetcg

That varies by state. Some states account for the custodial parents income when figuring support.

Technically that's the way it is in my great state of NJ! However, the guidelines are worded such that, when you crunch the numbers, the non-custodial parent's amount to be paid will essentially stay the same based on his income, regardless of what dollar amount of income is imputed to the custodial parent.

cdad · Oct 21, 2009, 05:29 PM

Here is an example as quoted from Minnesota child support guidelines. It also includes " pension " income which the 401k could be considered as.

Gross monthly income
The guidelines are based on gross monthly income, including:

• salary and wages
• commissions
• spousal maintenance
• potential income
• workers' compensation
• unemployment insurance
• annuity payments
• military and naval retirement
• pension and disability payments
• Social Security benefits received by a parent based on the parent's own eligibility
• Social Security benefits paid for a joint child based on a parent's eligibility
• income from self-employment or operation of a business

Ref:

Child support - guidelines

cdad · Oct 21, 2009, 05:33 PM

Also it seems Michigan follows along the same guidelines and it would be considered income.

Ref: PDF file

http://rds.yahoo.com/_ylt=A0geu.XBp9...MCSFmanual.pdf

stevetcg · Oct 21, 2009, 05:34 PM

401k isn't pension and falls into a different category. Its essentially tax deferred savings.

Ultimately though I think only a judge can rule on this. I was unable to find anything specific on it for any state.

cdad · Oct 21, 2009, 05:45 PM

Originally Posted by s_cianci

Technically that's the way it is in my great state of NJ! However, the guidelines are worded such that, when you crunch the numbers, the non-custodial parent's amount to be paid will essentially stay the same based on his income, regardless of what dollar amount of income is imputed to the custodial parent.

What your saying here just doesn't hold up to the way the law is written. For example if there were $60,000 in the 401K and it is being drawn out at a rate of $1,000 per month then the net benefit would be $12,000 per year. According to the NJ guidelines that would effect the level of "required" support from the NCP.

Ref: see rule IX A

Child Support Guidelines

cdad · Oct 21, 2009, 05:47 PM

Originally Posted by stevetcg

401k isnt pension and falls into a different category. Its essentially tax deferred savings.

Ultimately though I think only a judge can rule on this. I was unable to find anything specific on it for any state.

The United States Goobermint calls a 401K a pension plan. Take a look.

U.S. Department of Labor - Find It By Topic - Retirement Plans, Benefits & Savings - Consumer Information on Pension Plans

stevetcg · Oct 21, 2009, 06:32 PM

But a disbursement isn't the same as a pension being paid out...

According to what you posted I could see it being handled like an IRA or an one time gift also. Particularly since none of the money was 'earned' while support was in effect.

Im interested to see if there is an official ruling on this.

cdad · Oct 21, 2009, 07:01 PM

Originally Posted by stevetcg

But a disbursement isnt the same as a pension being paid out...

According to what you posted I could see it being handled like an IRA or an one time gift also. Particularly since none of the money was 'earned' while support was in effect.

Im interested to see if there is an official ruling on this.

I would like to also. It seems it can go many ways and from what was posted it can go either way depending on how much it is and how it is dispersed.