401(k) Loan Used During Marriage Must Be Equitably Divided in Property Distribution

One of the central underlying concepts of divorce and marital property settlement is something called equitable distribution. Equitable distribution, which is required by the Florida Statutes, means that each spouse should receive a fair portion of the marital estate, and each should share in both the marital assets and the marital liabilities. In a recent case, the 4th DCA rejected a trial court’s division of a 401(k) because it unfairly shared the account proceeds between both parties without similarly sharing the financial obligation for the outstanding account loan the couple took out during the marriage.

In 2011, a couple underwent mediation to reach an agreement regarding distribution of their property as part of their divorce. In addressing the husband’s 401(k) account with his employer, the couple agreed that the wife would receive one-half of the “the amount accumulated from the date of the marriage through January 1, 2008.” The agreement also stated that “loans and [withdrawals] taken during the marriage and not repaid will be taken into account for distribution purposes.”

The Qualified Domestic Relations Order (QDRO) the trial court entered, however, stated that the wife’s distribution would “not be reduced by the value of outstanding loans.” As a result, the wife received a payment of $47,505, while the husband’s remaining balance, which factored in an outstanding loan in excess of $30,000, stood at less than $13,700.

On appeal, however, the 4th DCA determined that the distribution was incorrect. The appeals court noted that the outstanding loans were taken for the benefit of both spouses, as the money was used to fund their collective lifestyle during the marriage. This was very important, because, under the principle of equitable distribution, if both spouses enjoyed the advantages of the loan proceeds, then both spouses should also share in the financial obligation for the outstanding loan.

This failure to divide the loan obligation was the flaw. While the 401(k) was a marital asset subject to distribution under the divorce, the loan was a marital liability that must similarly be accounted for, in order for the distribution to be fair to both spouses. “In other words, both the marital asset and marital liabilities should be included in the distribution, or neither should be included,” the court wrote. Because the trial court’s order divided the asset between the spouses, but handed the full obligation for the loan to the husband, it was not equitable. Allowing that order to stand would give the wife an unfair windfall and result in an inequitable distribution.

The decision reaffirms the idea that, unless special circumstances exist to create a different outcome, a divorcing couple should share equally in the marriage’s assets and its liabilities. As cases like this demonstrate, obtaining what is rightfully yours under the rules of equitable distribution is not always easy. If you have questions about the fairness of a proposed divorce settlement, or the enforcement of your existing divorce settlement, do not hesitate to contact the South Florida family law attorneys of Sandy T. Fox, P.A. They have been defending the legal rights and interests of people throughout the Fort Lauderdale and Miami-Dade area in divorce matters for many years. Whether you believe a proposed property division agreement is clearly unfair, or you just have questions, reach out to get experienced, knowledgeable answers from the professionals. Contact us online or by calling (800) 596-0579 to schedule your confidential consultation.

More Blog Posts:

Court Orders Husband to Pay Wife’s Attorney’s Fees in Child Support Battle, Fort Lauderdale Divorce Lawyer Blog, Sept. 17, 2013
Important Updates to Florida’s Alimony/Child Custody Legislation, Fort Lauderdale Divorce Lawyer Blog, May 23, 2013