Unfortunately, going through a divorce leads many people completely cash-strapped. While not ideal, if you have not built up enough liquid savings, you might be considering a withdrawal from a 401K. Here is an important tip you need to know about a 401K in divorce. This only works if you are awarded all or part of your spouse's 401K. It does not work for your own.
Your Spouse's 401K in Divorce
When you file the Qualified Domestic Relations Order (QDRO) to have all or part of your former spouse’s 401K distributed to you, you have an opportunity to take cash out of the account without paying the IRS’s 10% penalty (on funds withdrawn prior to age 59.5). To take advantage of this, when dividing a 401K in divorce, have the portion you need, paid directly from the account to you.
It does not need to be the full amount that you are receiving. Do not roll it into an IRA and then take it out because then you will be subject to the penalty.
Am I suggesting that retirement...