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401K used as collateral or security

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guesswho2
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401K used as collateral or security  Reply with quote  

Does anybody have any experience with issues surrounding the use of a 401K account as collateral for property division originally from divorce but years after a divorce is final. Not an issue with alimony, child support spousal support.

Issue surrounds note secured partially by 401K monies. Can a probate court defeat ERISA rules and coerce to you to sign over the account or create a QDRO?

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Post Mon Feb 13, 2006 12:51 am
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Jaszbo
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Looks like you need to see a lawyer for advice.
Post Mon Feb 13, 2006 1:48 am
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guesswho2
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quote:
Originally posted by Jaszbo
Looks like you need to see a lawyer for advice.


Thanks, I did this 3x over already... however, someone with some experience in this situation would be helpful with an opinion...please.
Post Mon Feb 13, 2006 1:59 pm
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coaster
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Wow, and you got three different opinions? Shocked

~Tim~
Post Tue Feb 14, 2006 1:55 am
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guesswho2
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quote:
Originally posted by coaster
Wow, and you got three different opinions? Shocked


No I have three people who can not tell me conclusively a solid answer!
This is a fairly rare (I hope) situation. This is why I was hopeing to find actual experience examples. Thanks for commenting.
Post Tue Feb 14, 2006 2:36 am
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coaster
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I would think a 401(k) can be used for collateral; at least the vested portion. It has value: funds can be withdrawn. But that's just my opinion, also. Now you have another one. Sorry. Wink

~Tim~
Post Tue Feb 14, 2006 2:46 am
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efflandt
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You may be able to borrow your own money from a 401k at your current employer for limited puposes. But I cannot see how a 401k can be used as collateral for a 3rd party loan, since it is protected from creditors. Was there any QDRO for your 401k when your divorce was settled (and was it completely settled), or are survivors after more.

My sister lost her 401k and daughter's college fund to her ex, but she got the home fully paid for.
Post Tue Feb 14, 2006 3:36 am
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coaster
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quote:
Originally posted by efflandt
... since it is protected from creditors.
Ahhhhhh....forgot about that. Thanks.

Never mind.


~Tim~
Post Tue Feb 14, 2006 3:54 am
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Jaszbo
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If you read your question "Does anybody have any experience with issues surrounding the use of a 401K account as collateral for property division originally from divorce but years after a divorce is final? Not an issue with alimony, child support spousal support. "

I'm telling you only a person in the law can correctly answer your question. Can a 401k plan be used as collateral, YES ,but

"For property division originally from divorce, but years after a divorce is final", for this part you are talking about not opinion, which money-talk is generally opinions about finance, not the law.

If you've seen divorce lawyers who cannot help you with this, then fire your laywer and find another one, because a financial board is not the place to ask these questions. If somebody here says "yes" what are you going to do differently? If somebody says "no" what are you going to do differently?

Collateral: Property acceptable as security for a loan or other obligation.
Most lends would allow your 401k as collateral
Post Tue Feb 14, 2006 1:45 pm
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JeanCunnigham
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Post Thu Sep 18, 2014 3:11 am
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fredjansen25
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I know this thread is a little old but allow me to post my thoughts. It depends on the 401(k) Plan document. I've never seem a plan document that allows a participant's plan balance to be pledged as collateral against a loan, unless that loan were made inside the plan. But then again, there may be individually designed plan documents that the IRS has accepted that do. - I've just never seen one.

Many plans permit loans inside the plan, but there are very specific regulations that govern those loans in terms of the amount, the duration, the amortization, and what happens in the event of default. Then in addition to those requirements, the plan sponsor (probably your employer) may have additional requirements that were incorporated into the plan document itself that deal with whether loans are even available to plan participants and under what circumstances or conditions loans may be used for.

Plan participant loans have a specific exemption under ERISA definition of a prohibited transaction. But just because ERISA permits loans, a plan sponsor is under no legal obligation to provide for them in their individual plan document. In fact, some plan sponsors purposefully do not allow plan loans because they do not believe plan loans are in the employee's best interest (using monies specifically intended for helping to meet the needs of the employee in their retirement years, instead of credit that could be obtained through customary lending sources). I'm not saying I agree or disagree with that that stance, it's just a position that some plan sponsors have taken.[/url]
Post Fri Dec 26, 2014 12:48 pm
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